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**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

** **

**FORM 10-Q**

** **
| **x**      | **Quarterly Report Under  Section 13 or 15(d) of the Securities Exchange Act of 1934**                                                                                                                                                                                                                                                                                                                                                                                                        |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| ** ** | **For the quarterly period ended September 30, 2008**                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **o**      | **Transition Report pursuant to  Section 13 or 15(d) of the Securities Exchange Act of 1934**                                                                                                                                                                                                                                                                                                                                                                                                 |
| ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| ** ** | **For the transition period from                                          to                                      .** |

** **

**Commissionfile number 001-15070**

** **

**REGENERXBIOPHARMACEUTICALS, INC.**

(Exact Name of Registrant as Specified in itsCharter)

 

| **Delaware**             | ** ** | **52-1253406**             |
|--------------------------|------------|----------------------------|
| (State of Incorporation) |       | (IRS Employer I.D. Number) |

 

**3 Bethesda Metro Center**

**Suite 630**

**Bethesda, Maryland 20814**

(Address of Principal Executive Offices)

 

**(301) 280-1992**

(Registrant’s Telephone Number, IncludingArea Code)

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the ExchangeAct of 1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.  Yes  x   No  o

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer or a smaller reportingcompany. See definitions of “accelerated filer,” “large accelerated filer” and“smaller reporting company” in Rule 12b-2 of the Securities Exchange Actof 1934. (Check one):

 
| Large accelerated filer o                |   | Accelerated filer o         |
|-----------------------------------------------|--------|----------------------------------|
| Non-accelerated filer o                  |   | Smaller reporting company x |
| (Do not check if a smaller reporting company) |   |                             |

 

Indicate by check mark whether the registrantis a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o   No  x

 

51,553,527****shares ofRegeneRx Biopharmaceuticals, Inc. Common Stock, par value $0.001 pershare, were outstanding as of November 6, 2008.

 

 

 

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**RegeneRx Biopharmaceuticals, Inc.**

**Form 10-Q**

**Quarterly Period Ended September 30,2008**

 

**INDEX**

 
| ** **    | ** **            | ** **                                                                                                        | **Page No.** |
|---------------|-----------------------|-------------------------------------------------------------------------------------------------------------------|-------------------|
| Part I.  | Financial Information |                                                                                                              |              |
|          |                  |                                                                                                              |              |
|          | Item 1.               | Financial Statements                                                                                              |              |   |
|          |                  |                                                                                                              |              |   |
|          |                  | Balance Sheets  at September 30, 2008 (unaudited)  and December 31, 2007                                |              | 3 |
|          |                  |                                                                                                              |              |   |
|          |                  | Statements of  Operations for the three months and nine months ended September 30, 2008 and 2007 (unaudited) |              | 4 |
|          |                  |                                                                                                              |              |   |
|          |                  | Statements of  Cash Flows for the nine months ended September 30,  2008 and 2007  (unaudited)                |              | 5 |
|          |                  |                                                                                                              |              |   |
|          |                  | Notes to Financial  Statements (unaudited)                                                                        |              | 6-7 |
|          |                  |                                                                                                              |              |   |
|          | Item 2.               | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                       |              | 13 |
|          |                  |                                                                                                              |              |   |
|          | Item 3.               | Quantitative and Qualitative Disclosures  About Market Risk                                                       |              | 17 |
|          |                  |                                                                                                              |              |   |
|          | Item 4                | Controls and Procedures                                                                                           |              | 17 |
|          |                  |                                                                                                              |              |   |
| Part II. | Other Information     |                                                                                                              |              |
|          |                  |                                                                                                              |              |   |
|          | Item 1.               | Legal Proceedings                                                                                                 |              | 18 |
|          |                  |                                                                                                              |              |   |
|          | Item 1A.              | Risk Factors                                                                                                      |              | 18 |
|          |                  |                                                                                                              |              |   |
|          | Item 2.               | Unregistered Sales of Equity Securities and  Use of Proceeds                                                      |              | 36 |
|          |                  |                                                                                                              |              |   |
|          | Item 3.               | Defaults Upon Senior Securities                                                                                   |              | 36 |
|          |                  |                                                                                                              |              |   |
|          | Item 4.               | Submission of Matters to a Vote of Security  Holders                                                              |              | 36 |
|          |                  |                                                                                                              |              |   |
|          | Item 5.               | Other Information                                                                                                 |              | 37 |
|          |                  |                                                                                                              |              |   |
|          | Item 6.               | Exhibits                                                                                                          |              | 37-38 |
|          |                  |                                                                                                              |              |   |
|          | Signatures            |                                                                                                              | 39                |

 

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**PART I – FINANCIAL INFORMATION**

 

Item 1.                    Financial Statements

 

**RegeneRx Biopharmaceuticals, Inc.**

**BalanceSheets**

 
| ** **                                                                                                                 | ** ** | **September 30** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                                                                                 | ** ** | **2008**              | ** ** | **2007**              | ** ** |
| ** **                                                                                                                 | ** ** | **(Unaudited)**       | ** ** | ** **            | ** ** |
| ASSETS                                                                                                                     |       |                  |       |                  |       |
| Current assets                                                                                                             |       |                  |       |                  |       |
| Cash and cash equivalents                                                                                                  |       | $                     | 5,386,899  |                  | $          | 3,696,878 |   |
| Short-term investments                                                                                                     |       | —                |       | 4,579,592             |       |
| Accounts receivable                                                                                                        |       | —                |       | 26,951                |       |
| Prepaid expenses and other current assets                                                                                  |       | 309,750               |       | 268,244               |       |
| Total current assets                                                                                                       |       | 5,696,649             |       | 8,571,665             |       |
| Fixed assets, net of accumulated  depreciation of $77,029 and $62,227                                                      |       | 29,633                |       | 44,435                |       |
| Other non-current assets                                                                                                   |       | 5,693                 |       | 5,693                 |       |
| Total assets                                                                                                               |       | $                     | 5,731,975  |                  | $          | 8,621,793 |   |
|                                                                                                                       |       |                  |       |                  |       |
| LIABILITIES  AND STOCKHOLDERS’ EQUITY                                                                                 |       |                  |       |                  |       |
| Current liabilities                                                                                                        |       |                  |       |                  |       |
| Accounts payable                                                                                                           |       | $                     | 402,069    |                  | $          | 273,561 |   |
| Accrued expenses                                                                                                           |       | 1,217,860             |       | 2,195,508             |       |
| Total current liabilities                                                                                                  |       | 1,619,929             |       | 2,469,069             |       |
|                                                                                                                       |       |                  |       |                  |       |
| Commitments                                                                                                                |       | —                |       | —                |       |
|                                                                                                                       |       |                  |       |                  |       |
| Stockholders’ equity                                                                                                  |       |                  |       |                  |       |
| Preferred stock, $.001 par value per share,  1,000,000 authorized; no shares issued                                        |       | —                |       | —                |       |
| Common stock, par value $.001 per share,  100,000,000 shares authorized; 51,553,527 and 46,553,527 issued and  outstanding |       | 51,554                |       | 46,554                |       |
| Additional paid-in capital                                                                                                 |       | 79,277,011            |       | 73,513,292            |       |
| Accumulated other comprehensive loss                                                                                       |       | —                |       | (1,543                | )          |
| Accumulated deficit                                                                                                        |       | (75,216,519           | )          | (67,405,579           | )          |
| Total stockholders’ equity                                                                                            |       | 4,112,046             |       | 6,152,724             |       |
| Total liabilities and stockholders’ equity                                                                            |       | $                     | 5,731,975  |                  | $          | 8,621,793 |   |

 

The accompanying notes are anintegral part of these financial statements.

 

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**RegeneRx Biopharmaceuticals, Inc.**

**Statementsof Operations**

(Unaudited)

 
| ** **                                            | ** ** | **Three-Months ended September 30,** | ** ** | **Nine-Months ended September 30,** | ** ** |
|-------------------------------------------------------|------------|-----------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                            | ** ** | **2008**                                            | ** ** | **2007**                                           | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                            | ** ** | **(Unaudited)**                                     | ** ** | **(Unaudited)**                                    | ** ** | **(Unaudited)** | ** ** | **(Unaudited)** | ** ** |
| Sponsored research revenue                            |       | $                                                   | 136,245    |                                               | $          | 213,373 |   | $ | 168,412 |   | $ | 213,373 |   |
|                                                  |       |                                                |       |                                               |       |   |   |   |   |
| Operating expenses:                                   |       |                                                |       |                                               |       |   |   |   |   |
| Research and development                              |       | 1,766,350                                           |       | 1,761,759                                          |       | 5,198,515 |   | 6,120,007 |   |
| General and administrative                            |       | 773,892                                             |       | 684,617                                            |       | 2,954,177 |   | 2,269,745 |   |
| Total operating expenses                              |       | 2,540,242                                           |       | 2,446,376                                          |       | 8,152,692 |   | 8,389,752 |   |
| Loss from operations                                  |       | (2,403,997                                          | )          | (2,233,003                                         | )          | (7,984,280 | ) | (8,176,379 | ) |
| Interest income                                       |       | 30,606                                              |       | 151,301                                            |       | 138,340 |   | 539,239 |   |
| Net loss                                              |       | $                                                   | (2,373,391 | )                                                  | $          | (2,081,702 | ) | $ | (7,845,940 | ) | $ | (7,637,140 | ) |
|                                                  |       |                                                |       |                                               |       |   |   |   |   |
| Basic and diluted net loss per common share           |       | $                                                   | (0.05      | )                                                  | $          | (0.04 | ) | $ | (0.16 | ) | $ | (0.16 | ) |
| Weighted average number of common shares  outstanding |       | 51,553,527                                          |       | 46,443,527                                         |       | 50,604,767 |   | 46,436,479 |   |

 

The accompanying notes are an integral partof these financial statements.

 

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**RegeneRxBiopharmaceuticals, Inc.**

**Statementsof Cash Flows**

(Unaudited)

 
| ** **                                                                                | ** ** | **For the Nine Months ended September 30,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|
| ** **                                                                                | ** ** | **2008**                                                                  | ** ** | **2007** | ** ** |
| ** **                                                                                | ** ** | **(Unaudited)**                                                           | ** ** | **(Unaudited)** | ** ** |
|                                                                                      |       |                                                                      |       |   |   |
| Operating activities:                                                                     |       |                                                                      |       |   |   |
| Net loss                                                                                  |       | $                                                                         | (7,845,940 | ) | $ | (7,637,140 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities:              |       |                                                                      |       |   |   |
| Depreciation and amortization                                                             |       | 14,802                                                                    |       | 15,695 |   |
| Non-cash share-based compensation                                                         |       | 820,959                                                                   |       | 771,520 |   |
| Changes in operating assets and  liabilities:                                             |       |                                                                      |       |   |   |
| Accounts receivable                                                                       |       | 26,951                                                                    |       | 59,118 |   |
| Prepaid expenses and other current assets                                                 |       | (6,506                                                                    | )          | (221,899 | ) |
| Other non-current assets                                                                  |       | —                                                                    |       | 6,056 |   |
| Accounts payable                                                                          |       | 128,508                                                                   |       | (30,558 | ) |
| Accrued expenses                                                                          |       | (977,648                                                                  | )          | (46,204 | ) |
| Net cash used in operating activities                                                     |       | (7,838,874                                                                | )          | (7,083,412 | ) |
|                                                                                      |       |                                                                      |       |   |   |
| Investing activities:                                                                     |       |                                                                      |       |   |   |
| Purchase of short-term, available-for-sale  investments                                   |       | —                                                                    |       | (17,562,536 | ) |
| Proceeds from sales/maturities of  short-term investments                                 |       | 4,581,135                                                                 |       | 13,400,000 |   |
| Purchase of fixed assets                                                                  |       | —                                                                    |       | (10,433 | ) |
| Net cash provided by (used in) investing  activities                                      |       | 4,581,135                                                                 |       | (4,172,969 | ) |
|                                                                                      |       |                                                                      |       |   |   |
| Financing activities:                                                                     |       |                                                                      |       |   |   |
| Net proceeds from issuance of common stock                                                |       | 4,947,760                                                                 |       | — |   |
| Preceeds from exercise of warrants                                                        |       | —                                                                    |       | 45,706 |   |
| Net cash provided by financing activities                                                 |       | 4,947,760                                                                 |       | 45,706 |   |
| Net increase (decrease) in cash and cash  equivalents                                     |       | 1,690,021                                                                 |       | (11,210,675 | ) |
| Cash and cash equivalents:                                                                |       |                                                                      |       |   |   |
| Beginning of period                                                                       |       | 3,696,878                                                                 |       | 13,052,308 |   |
| End of period                                                                             |       | $                                                                         | 5,386,899  |   | $ | 1,841,633 |   |
|                                                                                      |       |                                                                      |       |   |   |
| Non-cash transactions:                                                                    |       |                                                                      |       |   |   |
| Cumulative adjustment to Accumulated  Deficit for the adoption of EITF 07-03 (See Note F) |       | $                                                                         | 35,000     |   | $ | — |   |

 

The accompanying notes are an integral partof these financial statements.

 

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**RegeneRx Biopharmaceuticals, Inc.**

**Notes toFinancial Statements**

**For the nine-months ended September 30,2008 and 2007 (Unaudited)**

 

A.      ORGANIZATION,BUSINESS OVERVIEW AND BASIS OF PRESENTATION

 

RegeneRx Biopharmaceuticals, Inc. (the “Company”, “we”, “us”,“our” or “RegeneRx”), is a biopharmaceutical company focused on the discoveryand development of novel molecules to promote tissue and organ repair. Currently, we have formulated three product candidates based on Thymosin beta 4(“Tb4”), a 43 aminoacid peptide.  Current research suggeststhat these product candidates may prove efficacious for multiple medicalindications when administered either topically or systemically. Therefore, we are developing several Tb4-based productcandidates:  RGN-137, a topically applied gel for hard-to-heal chronicdermal wounds; RGN-259, a sterile, preservative-free topical eye drop forophthalmic wounds; and RGN-352, a parenteral (injectable) formulation forsystemic delivery of Tb4.  We are initially targeting our parenteralformulation for the treatment of patients with an acute myocardial infarction(“AMI”) or heart attack.  Additionally,we have announced RGN-457, a fourth, pre-clinical formulation of Tb4targeting cystic fibrosis and other pulmonary indications.

 

We have applied for or hold over sixty world-wide patents on peptidecompositions, uses and formulations related to dermal, ophthalmic and otherorgan and tissue repair, as well as for cosmetic and consumer productapplications.  We are sponsoring five clinical trials underInvestigational New Drug Applications (“INDs”) cleared by the U.S. Food andDrug Administration (“FDA”).  These fivetrials are being conducted in parallel and include three Phase II dermal woundhealing trials for RGN-137, our topical dermal gel, a Phase II ophthalmic woundhealing trial for RGN-259, our sterile eye drop, and a Phase I clinical trialfor RGN-352, our injectable product candidate in support of our cardiovascularclinical program.  Under one of our INDs and with European regulatoryapproval, an affiliate of Sigma-Tau Finanziaria S.p.A. (“Sigma-Tau”), ourlargest stockholder and a leading international pharmaceutical company, isconducting one of the Phase II dermal wound healing clinical trials in venousstasis ulcers in Italy and Poland.  Sigma-Tau has assumed all costsassociated with that trial.

 

We completed patient enrollment in our first two Phase II clinicaltrials in the second and third quarters of 2008.  We expect to report preliminary data from thePhase II pressure ulcer trial in December 2008 and from the Phase IIvenous stasis trial in January 2009. We also expect to report data from the Phase I parenteral (injectable)trial in the 1st quarter of 2009. The other trials are targeted for completion in 2009.

 

The accompanying unaudited interim financial statements reflect, in theopinion of management, all adjustments (consisting only of normal recurringadjustments) necessary for a fair presentation of our financial position,results of operations and cash flows for each period presented.  These statements have been prepared inaccordance with U. S. generally accepted accounting principles (“GAAP”) andwith the rules and regulations of the Securities and Exchange Commission(“SEC”), for interim financial statements. Accordingly, they do not include all of the information and footnotesrequired by GAAP. The accounting policies underlying our unaudited interimfinancial statements are consistent with those underlying our audited annualfinancial statements. These unaudited interim financial statements should beread in conjunction with the audited annual financial statements as of and forthe year ended December 31, 2007, and related notes thereto, included inour Annual Report on Form 10-K for the year ended December 31, 2007(the “Annual Report”).

 

The accompanying December 31, 2007 financial information wasderived from our audited financial statements. Operating results for the three and nine-month periods ended September 30,2008 are not 

 

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necessarily indicative of the results to be expected for the yearending December 31, 2008 or any other future period.

 

We have not commercialized any of our product candidates to date and,to the extent that our capital resources may be insufficient to meet our futurecapital requirements, we may need to finance our future cash needs throughpublic or private equity offerings, debt financings or corporate collaborationand licensing arrangements. However, we do not currently have any commitmentsfor future external funding and additional equity or debt financing may not beavailable on a timely basis, on acceptable terms, or at all.  We may also be eligible to receive milestonepayments under our collaboration agreement with an affiliate of Sigma-Tau.  However, the achievement of the milestonesthat are required to trigger the milestone payments and the timing of any suchmilestone payments is uncertain, and we may never receive a milestone payment.

 

If adequate funds are not available, we may be required to delay,reduce the scope of or eliminate our research and development programs or obtainfunds through arrangements with collaborators or others that may require us torelinquish rights to certain product candidates that we might otherwise seek todevelop or commercialize independently. In addition, if we raise funds byselling additional shares of our common stock or securities convertible intoour common stock, the ownership interest of our existing stockholders may besignificantly diluted. If additional funds are raised through the issuance ofpreferred stock or debt securities, these securities are likely to have rights,preferences and privileges senior to our common stock and may involvesignificant fees, interest expense, restrictive covenants and the granting ofsecurity interests in our assets.

 

B.      SPONSOREDRESEARCH REVENUES

 

We account for non-refundable grants as “Sponsored ResearchRevenues.”  Associated revenues arerecognized when the associated research has been performed and the relatedunderlying costs are incurred.

 

C.      NETLOSS PER SHARE

 

Net loss per share is based on the weighted average number of commonshares outstanding during the three and nine-month periods ended September 30,2008 and 2007.  During these periods,certain securities were not included in the calculation as their effect wouldbe anti-dilutive.  Securities that couldpotentially dilute basic net loss per share in the future, and that were notincluded in the calculation of diluted net loss per share, are as follows:

 
| ** **                                                                          | ** ** | **September 30,** | ** ** |
|-------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                          | ** ** | **2008**               | ** ** | **2007** | ** ** |
|                                                                                |       |                   |       |   |   |
| Outstanding stock options                                                           |       | 4,092,500              |       | 3,545,000 |   |
| Warrants                                                                            |       | 3,837,320              |       | 3,522,544 |   |
| Total potential common shares excluded from  diluted net loss per share computation |       | 7,929,820              |       | 7,067,544 |   |

 

D.      STOCKBASED COMPENSATION

 

We have a share-based compensation plan under which employees,consultants, advisors and non-employee directors may be granted options topurchase shares of our common stock at the fair market value at the time ofgrant.  We recognize the fair value ofshare-based compensation in net loss on a straight-line basis over therequisite service period.

 

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The following table provides amounts of share-based compensation costrecorded in the statement of operations:

 
| ** **                             | ** ** | **Three months ended** | ** ** | **Nine Months ended** | ** ** |
|----------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                             | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                             | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                             | ** ** | ** **                       | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Employees                              |       | $                                | 184,255    |                            | $          | 162,871 |   | $ | 530,719 |   | $ | 486,356 |   |
| Non-employees                          |       | 96,354                           |       | 94,239                          |       | 290,240 |   | 285,164 |   |
| Total share-based compensation expense |       | $                                | 280,609    |                            | $          | 257,110 |   | $ | 820,959 |   | $ | 771,520 |   |
|                                   |       |                             |       |                            |       |   |   |   |   |
| Research and development               |       | $                                | 111,509    |                            | $          | 105,534 |   | $ | 328,552 |   | $ | 317,187 |   |
| General and administrative             |       | 169,100                          |       | 151,576                         |       | 492,407 |   | 454,333 |   |
| Total share-based compensation expense |       | $                                | 280,609    |                            | $          | 257,110 |   | $ | 820,959 |   | $ | 771,520 |   |

 

During the first nine months of 2008 and 2007, we granted options topurchase 547,500 shares of our common stock and 860,000 shares of our commonstock, respectively. The weighted average fair value of options granted for thefirst nine months of 2008 and 2007 was $1.23 and $2.24 per option,respectively, and was determined using the following assumptions:

 
| ** **               | ** ** | **2008**    | ** ** | **2007**  | ** ** |
|--------------------------|------------|-------------|------------|-----------|------------|
|                     |       |        |       |      |       |
| Dividend yield           |       | 0.0         | %          | 0.0       | %          |
| Risk free rate of return |       | 2.7 - 3.7   | %          | 3.9 - 5.1 | %          |
| Expected life in years   |       | 4.75 - 4.75 |       | 3.0 - 5.0 |       |
| Volatility               |       | 68-73       | %          | 68 - 75   | %          |

 

At September 30, 2008, there was a total of approximately$1,345,748 in unrecognized compensation expense related to non-vested stockoptions which will be recognized over a weighted average period of 1.23 years.

 

E.     EQUITY TRANSACTIONS

 

On February 29, 2008, we closed agreements with two affiliates ofSigma-Tau, who are both accredited investors, with respect to the sale of5,000,000 shares of common stock at a price per share of $1.00 for gross proceedsof $5,000,000 (net proceeds of $4,947,760 after deducting exchange listing andlegal fees associated with the transaction.).  In connection with theoffering, we also issued warrants to purchase an additional 1,000,000 shares ofcommon stock with an exercise price of $1.60 per share.  Under the termsof the offering, we may, in our sole discretion, repurchase the shares sold inthe offering at any time until December 31, 2009, for $2.00 per share or,at any time between January 1, 2010 and December 31, 2010, for $2.50per share.  Our repurchase right terminates after December 31,2010.  In addition, the purchasers have agreed to vote the shares sold inthe offering, and any additional shares issued pursuant to the exercise of thewarrants, at the direction of our Board of Directors until December 31,2010.  The warrants have a term of three years.  One-third of thewarrants vested upon the closing of the offering, one-third is scheduled tovest on December 31, 2008, and one-third is scheduled to vest on December 31,2009.  

 

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However, should we repurchase all of the shares subject to the offeringprior to December 31, 2009, any unvested warrants would terminate as ofthe date we complete the repurchase.

 

On December 31, 2007, we amended the terms of certain warrantsheld by Sigma-Tau and other investors which were scheduled to expire between December 31,2007 and January 7, 2008 to extend the expiration date of each warrant to March 31,2008 and to eliminate the cashless exercise provisions of these warrants. On March 31, 2008, we again amended the terms of such warrants to extendthe expiration date of each warrant to December 31, 2009. None of thewarrant holders paid any additional consideration for these amendments.  While a related non-cash dividend should bereflected in the financial statements for this transaction, its value was notmaterial and therefore no associated amounts were recorded.  We estimatedthe value of this non-cash dividend by using the Black-Scholes pricing modelwith the following assumptions: warrants to purchase 444,250 shares of commonstock were extended while warrants to purchase 18,558 shares of common stockexpired by their terms on March 31, 2008; dividend yield of zero percent;expected volatility of 70%; risk free interest rate of 1.62% and expected life1.38 years.

 

At September 30, 2008, we had issued and outstanding warrants topurchase 3,837,320 shares of our common stock at a weighted average purchaseprice of $3.11 per share after giving effect to the March 31, 2008 warrantextension and including warrants to purchase 333,334 shares of our common stockthat were issued on February 29, 2008 to certain affiliates of Sigma-Tau,each as described above.

 

On July 2, 2008, stockholders approved an amendment to our Amendedand Restated 2000 Stock Option and Incentive Plan, as amended (the “Plan”), toincrease the aggregate number of shares of common stock authorized for issuanceunder the Plan by 2.3 million shares to an aggregate of 6.5 millionshares.  As of September 30, 2008,we had issued and outstanding options to purchase 4,092,500 shares of ourcommon stock at a weighted average purchase price of $1.73 per share.

 

F. PRONOUNCEMENTS IMPLEMENTED

 

On January 1, 2008, we adopted Emerging Issues Task Force (“EITF”)Issue No. 07-3, “Accounting forAdvance Payments for Goods or Services Received for Use in Future Research andDevelopment Activities”**(“EITF07-3”), which is being applied prospectively for new contracts. EITF 07-3addresses nonrefundable advance payments for goods or services that will beused or rendered for future research and development activities. EITF 07-3requires these payments be deferred and capitalized and recognized as anexpense as the related goods are delivered or the related services areperformed. The effect of the adoption of EITF 07-3 on our financial positionand results of operations was to record a cumulative, catch-up adjustment toincrease prepaid expenses and decrease the accumulated deficit by $35,000.  This adjustment was recorded as of January 1,2008.

 

In September 2006, the Financial Accounting Standards Board(“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157,“Fair Value Measurements” (“SFAS 157”), which provides guidance for using fairvalue to measure assets and liabilities. The pronouncement clarifies (1) theextent to which companies measure assets and liabilities at fair value; (2) theinformation used to measure fair value; and (3) the effect that fair valuemeasurements have on earnings. SFAS 157 will apply whenever another standardrequires (or permits) assets or liabilities to be measured at fair value. SFAS157 is effective as of January 1, 2008. The adoption of SFAS 157 did nothave an impact on our financial position or operating results. On February 12,2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 157-2 (“FSP157-2”). FSP 157-2 permits a delay in the effective date of SFAS No. 157to fiscal years beginning after November 15, 2008 for nonfinancial assetsand nonfinancial liabilities, except for items that are recognized or disclosedat fair value in the financial statements on a recurring basis, at leastannually. We are currently 

 

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assessing the impact of SFAS 157 for non-financial assets andnon-financial liabilities on our consolidated statements of financial positionand results of operations. In October 2008, the FASB issued Staff PositionNo. FAS  157-3, “Determining theFair Value of a Financial Asset When the Market for That Asset is Not Active(“FSP 157-3”). FSP 157-3 clarifies the application of SFAS No. 157, whichwe adopted as of January 1, 2008, in cases where a market is not active.We have considered the guidance provided by FSP 157-3 in our determination ofestimated fair values as of September 30, 2008, and the impact was notmaterial.

 

In February 2007, the FASB issued SFAS No. 159 (“SFAS 159”),“The Fair Value Option for Financial Assets and Financial Liabilities.”  Under SFAS 159, companies may elect tomeasure certain financial instruments and certain other items at fair value.The standard requires that unrealized gains and losses on items for which thefair value option has been elected be reported in earnings. SFAS 159 waseffective for us beginning in the first quarter of fiscal 2008. We currently donot have any instruments eligible for election of the fair value option.Therefore, the adoption of SFAS 159 in the first quarter of fiscal 2008 did notimpact our financial position, results of operations or cash flows.

 

G. PRONOUNCEMENTS NOT YET IMPLEMENTED

 

In December 2007, the FASB ratified the consensus reached by theEITF on Issue No. 07-1 (“EITF 07-1”), “Accounting for CollaborativeArrangements.” EITF 07-1 is effective beginning January 1, 2009 and will beapplied retrospectively to all prior periods presented for all collaborativearrangements existing as of the effective date. EITF 07-1 defines collaborativearrangements and establishes reporting requirements for transactions betweenparticipants in a collaborative arrangement and between participants in thearrangement and third parties. We are assessing the impact of adoption of EITF07-1 on our financial position and results of operations.

 

In December 2007, the FASB issued SFAS No. 141(R) (“SFAS141(R)”), “Business Combinations.”   SFAS141(R) establishes principles and requirements for how the acquirer in abusiness combination recognizes and measures identifiable assets acquired,liabilities assumed, non-controlling interest in the acquiree and goodwillacquired, and expands disclosures about business combinations. SFAS 141(R) requiresthe acquirer to recognize changes in valuation allowances on acquired deferredtax assets in its statement of operations. These changes in deferred taxbenefits were previously recognized through a corresponding reduction togoodwill. With the exception of the provisions regarding acquired deferredtaxes, which are applicable to all business combinations, SFAS 141(R) appliesprospectively to business combinations for which the acquisition date is on orafter the beginning of the first annual reporting period beginning on or after December 15,2008. Early adoption is not permitted. We do not expect the adoption of SFAS141(R) to have a material impact on our financial condition or results ofoperations.

 

In December 2007, the FASB issued SFAS No. 160 (“SFAS 160”),“Non-controlling Interests in Consolidated Financial Statements—an amendment ofARB No. 51.” SFAS 160 establishes accounting and reporting standards thatrequire:

 

·                  The ownershipinterests in subsidiaries held by parties other than the parent be clearlyidentified, labeled, and presented in the consolidated balance sheet withinequity, but separate from the parent’s equity;

 

·                  The amount ofconsolidated net income attributable to the parent and to the non-controllinginterest be clearly identified and presented on the face of the consolidatedstatement of income;

 

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·                  Changes in aparent’s ownership interest while the parent retains its controlling financialinterest in its subsidiary be accounted for consistently;

 

·                  When asubsidiary is deconsolidated, any retained non-controlling equity investment inthe former subsidiary be initially measured at fair value; and

 

·                  Entities providesufficient disclosures that clearly identify and distinguish between theinterests of the parent and the interests of the non-controlling owners.

 

SFAS 160 is effective for fiscal years, and interim periods withinthose fiscal years, beginning on or after December 15, 2008. Earlyadoption is not permitted. SFAS 160 shall be applied prospectively as of thebeginning of the fiscal year in which it is initially applied, except for thepresentation and disclosure requirements. The presentation and disclosurerequirements shall be applied retrospectively for all periods presented. We donot expect the adoption of SFAS 160 to have a material impact on our financialcondition or results of operations.

 

In March 2008, the FASB issued SFAS No. 161 (“SFAS 161”),“Disclosures about Derivative Instruments and Hedging Activities — an amendmentof FASB Statement No. 133.” SFAS 161 enhances the current disclosureframework in SFAS No. 133 (“SFAS 133”), “Accounting for DerivativeInstruments and Hedging Activities,” by requiring entities to provide detaileddisclosures about how and why an entity uses derivative instruments, howderivative instruments and related hedged items are accounted for under SFAS 133and its related interpretations and how derivative instruments and relatedhedged items affect an entity’s financial condition, results of operations andcash flows. SFAS 161 is effective for financial statements issued for fiscalyears beginning after November 15, 2008. We do not expect the adoption ofSFAS 161 to have a material impact on our financial condition or results ofoperations.

 

In June 2008, the FASB issued FSP EITF 03-06-1, “DeterminingWhether Instruments Granted in Share-Based Payment Transactions AreParticipating Securities” (“FSP EITF 03-06-1”). FSP EITF 03-06-1 provides thatunvested share-based payment awards that contain nonforfeitable rights todividends or dividend equivalents (whether paid or unpaid) are participatingsecurities and shall be included in the computation of earnings per sharepursuant to the two-class method in SFAS No. 128, “Earnings per Share.”Our unvested share-based payment awardsare not eligible to receive dividends; therefore FSP EITF 03-06-1 willnot have any impact on our financial statements.

 

H. INCOME TAXES

 

As of September 30, 2008, there have been no material changes toour uncertain tax positions disclosures as provided in Note 8 of the AnnualReport. We do not anticipate that total unrecognized tax benefits willsignificantly change prior to September 30, 2009.

 

I. FAIR VALUE MEASUREMENTS

 

On January 1, 2008, we adopted SFAS 157, which established aframework for measuring fair value in GAAP and clarified the definition of fairvalue within that framework. SFAS No. 157 does not require assets andliabilities that were previously recorded at cost to be recorded at fair value.For assets and liabilities that are already required to be disclosed at fairvalue, SFAS No. 157 introduced, or reiterated, a number of key conceptswhich form the foundation of the fair value measurement approach to be used forfinancial reporting purposes. The fair value of our financial instrumentsreflects the amounts that we 

 

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estimate to receive in connection with the sale of an asset or paid inconnection with the transfer of a liability in an orderly transaction betweenmarket participants at the measurement date (the “exit price”). SFAS No. 157also established a fair value hierarchy that prioritizes the use of inputs usedin valuation techniques into the following three levels:

 
| · |   | Level 1 - Quoted prices in active markets for identical assets and  liabilities.                              |
|--------|--------|---------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                          |
| · |   | Level 2 - Observable inputs other than quoted prices in active  markets for identical assets and liabilities. |
|   |   |                                                                                                          |
| · |   | Level 3 - Unobservable inputs.                                                                                |

 

In accordance with SFAS No. 157, the following table representsour fair value hierarchy for financial assets (cash equivalents andinvestments) measured at fair value on a recurring basis as of September 30,2008:

 
| ** **                   | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
|------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|-----------|------------|
| Cash and cash equivalents:   |       |             |       |             |       |             |       |      |       |
| Money market funds           |       | $                | 888,493    |             | $          | —           |       | $         | —     |   | $ | 888,493 |   |
|                         |       |             |       |             |       |             |       |      |       |
| United States Treasury Bills |       | 4,498,406        |       | —           |       | —           |       | 4,498,406 |       |
|                         |       |             |       |             |       |             |       |      |       |
| Total                        |       | $                | 5,386,899  |             | $          | —           |       | $         | —     |   | $ | 5,386,899 |   |

 

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**ITEM 2.  Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

*ThisQuarterly Report on Form 10-Q,including the section entitled “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations,” contains forward-lookingstatements regarding us and our business, financial condition, results ofoperations and prospects within the meaning of the Private SecuritiesLitigation Reform Act of 1995. Forward-looking statements may be identified bythe words “project,” “believe,” “anticipate,” “plan,” “expect,” “estimate,”“intend,” “should,” “would,” “could,” “will,” “may” or other similar expressions.*** ***In addition, any statements that refer to projections of our futurefinancial performance, our clinical development programs and schedules, ourfuture capital resources, our anticipated growth and trends in our business andother characterizations of future events or circumstances are forward-lookingstatements. We cannot guarantee that we will achieve the plans, intentions orexpectations expressed or implied in our forward-looking statements.  There are a number ofimportant factors that could cause actual results, levels of activity,performance or events to differ materially from those expressed or implied inthe forward-looking statements we make, including those described under “RiskFactors” set forth below. In addition, any forward-looking statements we makein this document speak only as of the date of this document, and we do notintend to update any such forward-looking statements to reflect events orcircumstances that occur after that date.*

 

**Overview**

 

Our operationsconsist primarily of pre-clinical studies and clinical trials related to thedevelopment of product candidates based on Thymosin beta 4 (“Tb4”),a 43 amino acid peptide. Currently, we are developing three Tb4-baseddrug formulations, including:  RGN-137, atopically applied gel for chronic dermal wounds; RGN-259, a sterile eye dropfor ophthalmic injuries; and RGN-352, a parenteral (injectable) formulation forsystemic delivery of Tb4.  We are initially targeting our parenteralformulation for the treatment of patients with an acute myocardial infarction(“AMI”) or heart attack.  Additionally,we have announced RGN-457, a fourth, pre-clinical formulation of Tb4targeting cystic fibrosis and other pulmonary indications.

 

We arecurrently sponsoring, in parallel, three Phase II dermal wound healing clinicaltrials using RGN-137, a Phase II ophthalmic wound healing trial using RGN-259,and a Phase I clinical trial utilizing RGN-352 to support our cardiovascularclinical program.  Under our Phase IIInvestigational New Drug Application (“IND”) and with European regulatoryapproval, an affiliate of our largest stockholder, Sigma-Tau FinanziariaS.p.A.  (“Sigma-Tau”), is conducting oneof the Phase II dermal wound healing clinical trials in the European Union andhas assumed all associated costs.  We areprimarily responsible for the costs associated with the other four trials.

 

We completed patient enrollment in our first two Phase II clinicaltrials in the second and third quarters of 2008.  We expect to report preliminary data from thePhase II pressure ulcer trial in December 2008 and from the Phase IIvenous stasis trial in January 2009. We also expect to report data from the Phase I parenteral (injectable)trial in the 1st quarter of 2009. The other trials are targeted for completion in 2009.

 

We have nevergenerated revenues from product sales, and we do not expect to generatesignificant revenues until the U.S. Food and Drug Administration (“FDA”)approves one of our product candidates, if ever, and we are able tosuccessfully commercialize such product. We expect to invest significantamounts in furtherance of our current clinical programs and may add additionalpre-clinical studies and new clinical trials as we explore the potential of ourcurrent product candidates in other indications and/or explore new formulationsof Tb4-based productcandidates.  Consequently, we expect toincur substantial and increasing losses for at least the next severalyears.  Accordingly, we will need togenerate significant revenues to achieve and then maintain profitability.  We cannot assure you that we will be able togenerate revenue sufficient to achieve and maintain profitability or at all.Also, we expect that we will need to raise substantial additional outsidecapital in order to meet our current and future capital requirements.  We 

 

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cannot assureyou that such capital will be available when needed, or on acceptable terms.

 

Most of our expenditures to date have been for research and development(“R&D”) and general and administrative (“G&A”) activities.  R&D includes all of the wholly-allocablecosts associated with our various clinical programs passed through to us by ouroutsourced vendors.  Those costsinclude:  manufacturing Tb4;formulation of Tb4into the various product candidates, including vialing and labeling; stabilityfor both Tb4and the various formulations; pre-clinical toxicology, safety andpharmacokinetic studies; clinical trial management; patient care and studyparticipation; medical oversight; laboratory evaluations; statistical dataanalysis; regulatory compliance; quality assurance; and other relatedactivities.  R&D also includes cashand non-cash compensation, employee benefits, travel and other miscellaneouscosts related to our internal R&D personnel, which comprises seven personsin total, who are wholly dedicated to our R&D efforts.  R&D also includes a proration of ourcommon infrastructure costs for office space and communications.  We expense our R&D costs as they areincurred.

 

R&D expenditures are subject to the risks and uncertaintiesassociated with clinical trials and the FDA review and approval process. As aresult, these expenses could be materially higher than anticipated.  It is also difficult to estimate futureR&D costs related to our pre-clinical studies as these amounts are subjectto the outcome of current clinical studies, management’s continuing assessmentof the economics of each individual R&D project and internal competitionfor project funding.

 

G&A costsinclude outside professional fees for legal, audit and accounting services,including the costs to prosecute new patent applications and maintain existingpatents; review, draft and negotiate financing, manufacturing and othercorporate documents; research and conclude on appropriate financial reportingmatters, compliance with the Sarbanes-Oxley Act of 2002 and the financialaudits required by the Securities and Exchange Commission (“SEC”).  G&A also includes cash and non-cashcompensation, employee benefits, travel and other miscellaneous costs relatedto  our internal G&A personnel, whichcomprises three persons in total, who are wholly dedicated to definingcorporate strategy, management, and strategic partnering/businessdevelopment.  G&A also includes aproration of our common infrastructure costs for office space andcommunications.

 

**Critical Accounting Policies.**

 

In Item 7(“Management’s Discussion and Analysis of Financial Condition and Results ofOperations”) of our Annual Report on Form 10-K for the year ended December 31,2007, which was filed with the SEC on March 28, 2008 (the “AnnualReport”), we included a discussion of the most significant accounting policiesand estimates used in the preparation of our financial statements. There hasbeen no material change in the policies and estimates used in the preparationof our financial statements since the filing of our Annual Report.

 

**Results ofOperations**

 

***Comparison of the three months ended September 30, 2008 and 2007***

 

*Revenues*.  For the three months ended September 30,2008 and 2007, revenues recognized under our grant from the National Institutesof Health (“NIH”) for the orphan indication Epidermolysis Bullosa (“EB”) decreased from approximately $0.2million in 2007 to $0.1 million in 2008. Revenue recognized in both periods is a function of qualifying costsincurred for reimbursement during the period as compared to funding available.  During the quarter ended September 30,2008, we received funding on this grant in the amount of $136,245, compared to$213,373 in 2007, bringing the total federal funding for our EB research 

 

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efforts toapproximately $680,000.  As of September 30,2008, all funding had been received and we do not expect to receive anyadditional funds.

 

*R&D Expenses*.  For both the three months ended September 30,2008 and 2007, our R&D expenses were approximately $1.8 million.  While the underlying clinical trial activityvaried between the periods, the net overall expenditures remained consistent.

 

*G&AExpenses.*  Forthe three months ended September 30, 2008, our G&A expenses increasedby less than  $0.1 million, or 13%, toapproximately $0.8 million, as compared to approximately $0.7 million for thethree months ended September 30, 2007. This difference was attributable toincreased legal costs related to the continued expansion of our intellectualproperty portfolio and other business development matters.

 

***Comparison of the nine months ended September 30, 2008 and 2007***

 

*Revenues*.  For both the nine months ended September 30,2008 and 2007, revenue was approximately $0.2 million.  Revenue recognizedin both periods is a function of qualifying costs incurred for reimbursementduring the period as compared to funding available.  During the nine months ended September 30,2008, we received funding on this grant in the amount of $168,412, compared to$213,373 in 2007, bringing the total federal funding for our EB researchefforts to approximately $680,000.  As ofSeptember 30, 2008,  all funding hadbeen received and we do not expect to receive any additional funds.

 

*R&DExpenses*.  Forthe nine months ended September 30, 2008, our R&D expenses decreasedby approximately $0.9 million, or 15%, to approximately $5.2 million, ascompared to approximately $6.1 million for the nine months ended September 30,2007, primarily due to our periodic purchase of Tb4.  During the first nine months of 2007 wepurchased $0.9 million of Tb4 without acorresponding purchase in the first nine months of 2008.  At the end of 2007 we also purchasedapproximately $0.8 million of Tb4 and do not planto purchase additional Tb4 during calendar 2008.

 

*G&AExpenses.*  Forthe nine months ended September 30, 2008, our G&A expenses increasedby approximately $0.7 million, or 30%, to approximately $3.0 million, ascompared to approximately $2.3 million for the nine months ended September 30,2007. This difference was attributable to increased legal costs related to thecontinued expansion of our intellectual property portfolio and other businessdevelopment matters.

 

**Liquidityand Capital Resources**

 

***Sources of Liquidity***

 

As of September 30, 2008, we had cash and cash equivalents ofapproximately $5.4 million.  Thiscompares to cash, cash equivalents and short-term investments of approximately$8.3 million at December 31, 2007. Our cash position decreased in thefirst nine months of 2008 by a net $2.9 million.  During the nine month period we used $7.8million in operating activities, offset by net proceeds of approximately $4.9 millionreceived from the sale of 5 million shares of our common stock to affiliates ofSigma-Tau on February 29, 2008.

 

***Cash Flows***

 

**Net Cash Used in Operating Activities. **Net cash used in operating activities for thenine months ended 

 

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September 30, 2008 was approximately $7.8 million, approximately$0.8 million more than net cash used in operating activities during the sameperiod in 2007.  The difference wasprimarily due to our increased use of cash to affect a reduction in accountspayable and accrued expenses.

 

**Net Cash Provided By/Used In Investing Activities. **Net cash provided byinvesting activities was approximately $4.6 million for the nine months ended September 30,2008, as compared to net cash used in investing activities of approximately$4.2 million for the nine months ended September 30, 2007.  Our investing activities provided net cash ofapproximately $4.6 million in the first nine months of 2008 from the maturityof various short-term investments which were re-invested in U.S. TreasuryBills.   By contrast in the first ninemonths of 2007, we made a net investment in short-term, investment-gradesecurities of approximately $4.2 million, from the cash proceeds received inour December 21, 2006 private placement.

 

**Net Cash Provided by Financing Activities. **Net cash provided byfinancing activities totaled approximately $4.9 million for the nine monthsended September 30, 2008 as a result of our private placement ofsecurities on February 29, 2008.  Bycontrast, net cash provided by financing activities totaled approximately$45,000 in the nine months ended September 30, 2007, consisting entirelyof the proceeds from the exercise of warrants to purchase our common stock.

 

***Future Funding Requirements***

 

As of the dateof this report, we believe we have sufficient liquidity and capital resourcesto fund our operations through 2008, or if we elect to restrict certainexpenditures under our control, February 2009.  Accordingly, we have an immediate need forfinancing and are in the process of exploring various alternatives, including,without limitation, a public or private placement of our securities, debtfinancing or corporate collaboration and licensing arrangements, or the sale ofcertain of our intellectual property rights. However, we do not currently haveany commitments for future external funding and additional equity or debtfinancing may not be available on a timely basis, on acceptable terms, or atall.  We may also be eligible to receivemilestone payments under our collaboration agreement with an affiliate ofSigma-Tau.  However, the achievement ofthe milestones that are required to trigger the milestone payments and thetiming of any such milestone payments is uncertain, and we may never receive amilestone payment.

 

In addition,we cannot assure you that our current liquidity and capital resources will besufficient to fund our operations as set forth above.  The expenditures that will be necessary toexecute our business plan, and upon which our current liquidity and capitalresources estimate is based, are subject to numerous uncertainties, which mayadversely affect our liquidity and capital resources.  These uncertainties primarily concern ourdevelopment efforts.  As of September 30,2008, we had three product candidates in clinical trials, development of whichis primarily accomplished through cancellable third-party contracts.  If we do not cancel any of these contractsand continue follow-on development efforts as planned, we expect our R&Dexpenses to continue to trend higher as our product candidates advance throughthe various stages of clinical development. The length of time required forclinical trials varies substantially according to the type, complexity, noveltyand intended use of a product candidate. Some of the factors that coulddecrease our liquidity and increase our capital needs beyond our currentexpectations include, but are not limited to:

 

·                  the progress of our clinical trials,

·                  the progress of our researchactivities,

·                  the number and scope of our researchprograms,

·                  the progress of our pre-clinicaldevelopment activities,

·                  the costs involved in preparing,filing, prosecuting, maintaining, enforcing and defending patent and otherintellectual property claims,

 

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·                  the costs related to development andmanufacture of pre-clinical, clinical and validation lots for regulatorypurposes and commercialization of drug supply associated with our productcandidates,

·                  our ability to enter into corporatecollaborations and the terms and success of these collaborations,

·                  the costs and timing of regulatoryapprovals and

·                  the costs of establishingmanufacturing, sales and distribution capabilities.

 

If adequatefunds are not available in the near future, we may be required to delay, reducethe scope of or eliminate our research and development programs or obtain fundsthrough arrangements with collaborators or others that may require us torelinquish rights to certain product candidates that we might otherwise seek todevelop or commercialize independently. In addition, if we raise funds byselling additional shares of our common stock or securities convertible intoour common stock, the ownership interest of our existing stockholders may besignificantly diluted. If additional funds are raised through the issuance ofpreferred stock or debt securities, these securities are likely to have rights,preferences and privileges senior to our common stock and may involvesignificant fees, interest expense, restrictive covenants and the granting ofsecurity interests in our assets.

 

**Off Balance Sheet Arrangements.**

 

We do not have any off-balance sheet arrangements, as such term isdefined in Item 303(a)(4) of Regulation S-K.

 

**Item3. Quantitative and Qualitative Disclosures About Market Risk.**

 

At September 30,2008, our cash and cash equivalents, which totaled approximately $5.4 million,were comprised primarily of U.S. Treasury Bills as set forth in Note I to theunaudited financial statements included elsewhere in this report, with theremainder in money-market investments backed by U.S. government obligations,U.S. government agency obligations and investment-grade corporate bonds.  All of these securities are subject todefault, changes in credit ratings and changes in market value. We limit ourdefault risk by investing in high-quality, investment grade instruments.  Our exposure to market risks associated withchanges in interest rates relates primarily to the increase or decrease in theamount of interest income earned on our investment portfolio.  Due to the short-term nature of theseinvestments, if market interest rates were to increase by 10% from levels as ofSeptember 30, 2008, the decline in fair value would not be material.

 

**Item4.******* Controls andProcedures***

 

**a)Evaluation of****Disclosure Controls and Procedures**

 

Ourmanagement, under the supervision and with the participation of our ChiefExecutive Officer and Chief Financial Officer, performed an evaluation of theeffectiveness of the design and operation of our “disclosure controls and procedures”(as defined in Rule 13a-15(e) and 15d-15(e) of the SecuritiesExchange Act of 1934, as amended) as of September 30, 2008. Based uponthis evaluation, management has concluded that, as of September 30, 2008,our disclosure controls and procedures were effective to provide reasonableassurance that the information required to be disclosed is recorded, processed,summarized and reported within the time periods specified under applicable rules ofthe SEC, and that such information  isaccumulated and communicated to management, including our Chief ExecutiveOfficer and Chief Financial Officer, as appropriate, to allow timely decisionsregarding required disclosures.

 

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**b) Changes in Internal Controls**

 

There were no changes in our internal control over financial reportingduring the quarter ended September  30, 2008 that have materiallyaffected, or are reasonably likely to materially affect, our internal controlover financial reporting.

 

# **PART II – OTHER INFORMATION**

# ** **

#### **Item 1.**                    LegalProceedings

#### ** **

None.

 

#### **Item 1A.**                 RiskFactors

#### ** **

Set forth belowand elsewhere in this report and in other documents we file with the Securitiesand Exchange Commission are risks and uncertainties that could cause actualresults to differ materially from the results contemplated by theforward-looking statements contained in this report. The descriptions belowinclude any material changes to and supersede the description of the riskfactors affecting our business previously disclosed in “Part III, Item 1A.Risk Factors” of our Annual Report on Form 10-K for the year ended December 31,2007.

 

**Risks Related to Our Business**

 

***We estimate that our currentliquidity and capital resources are sufficient to fund our operations through2008.  Any failure to obtain additionalfinancing in the near future could lead to significant cutbacks in ouroperations or the failure of our business.***

 

As of the date ofthis report, we believe we have sufficient liquidity and capital resources tofund our operations through 2008. Accordingly, we have an immediate need for financing and are in theprocess of exploring various alternatives, including, without limitation, apublic or private placement of our securities, debt financing or corporatecollaboration and licensing arrangements or the sale of certain of ourintellectual property rights.  However,we do not currently have any commitments for future external funding andadditional equity or debt financing may not be available on a timely basis, onacceptable terms, or at all.

 

If we are unable to obtain financing in the near future, we may berequired to delay, reduce the scope of or eliminate our research anddevelopment programs, obtain funds through arrangements with collaborators orothers that may require us to relinquish rights to certain product candidatesthat we might otherwise seek to develop or commercialize independently, orcease operations altogether.  Inaddition, if we raise funds by selling additional shares of our common stock orsecurities convertible into our common stock, the ownership interest of ourexisting stockholders may be significantly diluted. If additional funds areraised through the issuance of preferred stock or debt securities, thesesecurities are likely to have rights, preferences and privileges senior to ourcommon stock and may involve significant fees, interest expense, restrictive covenantsand the granting of security interests in our assets.

 

***We have incurred losses since inception and expect to incur significantlosses in the foreseeable future and may never become profitable.***

 

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We have sustained operating losses since ourinception in 1982. We believe these losses will continue for the foreseeablefuture as we pursue our product development efforts related to Tb4. As of September 30, 2008, ouraccumulated deficit totaled approximately $75.2 million and our cash and cashequivalents totaled approximately $5.4 million.

 

We anticipate substantial and increasingoperating losses over the next several years as we continue our research anddevelopment efforts and seek to obtain regulatory approval of our productcandidates to make them commercially viable. Our ability to generate additionalrevenues and potential to become profitable will depend largely on our ability,alone or through the efforts of third-party licensees, to efficiently andsuccessfully complete the development of our product candidates, obtainnecessary regulatory approvals for commercialization, scale-up commercialquantity manufacturing capabilities either internally or through third-partysuppliers, and market our product candidates. There can be no assurance thatthese objectives will occur or that we will ever become profitable or be ableto maintain profitability. Even if we do achieve profitability, we cannotpredict the level of such profitability. If we sustain losses over an extendedperiod of time and are not otherwise able to raise necessary funds to continueour development efforts and maintain our operations, we may be forced to ceaseoperations.

 

***We will need substantialadditional capital to develop our product candidates and for our futureoperations. If we are unable to obtain such funds when needed, we may have todelay, scale back or terminate our product development efforts or our business.***

 

Beyond our immediate liquidity needs, weanticipate that substantial new capital resources will be required to continueour independent development efforts, including any and all follow-on trialsthat will result from our current clinical programs, and to scale upmanufacturing processes for RGN-137, RGN-259 and RGN-352. The actual amount offunds that we will need will be determined by many factors, some of which arebeyond our control. These factors include, without limitation:

 

·                  the scope of our clinical trials, which issignificantly influenced by the quality of clinical data achieved as trials arecompleted and the requirements established by regulatory authorities,

 

·                  the speed with which we complete our clinicaltrials, which depends on the speed with which we can attract and enrollqualifying patients and the quality of the work performed by our clinicalinvestigators,

 

·                  the time required to prosecute, enforce anddefend our intellectual property rights, which depends on evolving legalregimes and infringement claims that may arise between us and third-parties,

 

·                  the ability to manufacture at scalessufficient to supply commercial quantities of any of our product candidatesthat receive regulatory approval, which may require levels of effort notcurrently anticipated and

 

·                  the successful commercialization of ourproduct candidates, which will depend on our ability to either create orpartner with an effective commercialization organization and which could bedelayed or prevented by the emergence of equal or more effective therapies.

 

Potential sources of outside capital includeentering into strategic business relationships, public or private sales ofshares of our capital stock, or debt, or other similar financial instruments.We do not at this time 

 

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have any other committed sources of outsidecapital at this time. Consequently, there can be no assurance that we will beable to obtain capital in sufficient amounts, or on acceptable terms, or in thetimeframe needed to ensure the uninterrupted execution of our businessstrategy.

 

One potential source of capital often reliedon by emerging biotechnology companies is through licensing certainintellectual property rights to other biotechnology or pharmaceuticalenterprises.  If we raise additional capital through such a license,we may have to give up valuable short- and/or long-term rights to suchintellectual property.  In addition, as the business priorities of anylicense change over time, the possibility exists that its interest indeveloping our technology may diminish, which could have a material negativeimpact on the value of our interest in the license.  In addition, if we raise funds by sellingshares of our common stock or securities convertible into our common stock, theownership interest of our existing stockholders may be significantly diluted.If additional funds are raised through the issuance of preferred stock or debtsecurities, these securities are likely to have rights, preferences andprivileges senior to our common stock and may involve significant fees,interest expense, restrictive covenants and the granting of security interestsin our assets.

 

Our failure to successfully address ongoingliquidity requirements would have a material negative impact on our business,including the possibly of surrendering our rights to some technologies orproduct opportunities, delaying our clinical trials, or ceasing operations.

 

***The recent downturn in the U.S. economy and the recent pressure oncapital markets increase the possibility of and may exacerbate the impact ofany adverse effects on our financial position and business prospects. Continuedeconomic adversity may lead to or accelerate a decrease in the trading price ofour common stock and make it more difficult for us to raise capital, enter intocollaborations or maintain our compliance with the minimum listing standards ofthe American Stock Exchange.***

 

The recent downturn in the U.S. economy and the extraordinary pressurebeing placed on both debt and equity markets have led to significant retractionin U.S. businesses, sudden and severe decreases in the prices of U.S. equitiesgenerally and a severe shortage in available credit.  These factors have made it more difficult, ingeneral, for companies to expand or maintain their current operations and haveincreased the likelihood that certain companies will fail.  Although we cannot say with certainty theimpact the current economic crises has had on us to date or may have on us inthe future, continued pressure on the U.S. economy and its capital markets maymake it more difficult for us to raise capital or enter into collaborations orlicensing relationships for purposes of developing our technology and/orincreasing our liquidity. Any inability for us to raise capital or enter intostrategic relationships, as a result of the economic downturn or otherwise, wouldmake it more difficult or impossible for us to continue operations afterFebruary of 2009.  The economic downturnmay also lead to or accelerate a decrease in the trading price of our commonstock, which could make it more difficult for us to maintain compliance withcertain continued listing requirements of the American Stock Exchange,including a market capitalization of at least $50 million, as described below.

 

***Our securities may be subject to delisting by the American StockExchange.***

 

Under the listing rules ofthe American Stock Exchange, our shares are subject to delisting by theAmerican Stock Exchange if both our total stockholder’s equity falls below $6million and we fail to maintain a market capitalization of at least $50million.  As of September 30, 2008,our total stockholders equity was approximately $4.1 million.  On November 5, 2008 our marketcapitalization was approximately $59 million, although it has been less than$50 million on occasion during 2008.  We have not receivednotification from the American Stock Exchange of a deficiency in our compliancewith the 

 

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exchange’s continued listing standards related to our stockholder’sequity or market capitalization.  In theevent that we were to receive such a notice, we would be required to issue apress release and to file the appropriate report with the SEC.  We would then expect to have an opportunityto provide the exchange with a plan to regain compliance with the appropriatelisting standard or, if the exchange does not accept such a plan, appeal anydecision by the exchange to delist our shares. There can be no assurance that theexchange would accept such a plan, that such a plan would be successful, orthat any appeals by us to the exchange would be successful.  If our common stock were to be delisted, wewould intend to take steps to allow our common stock to be quoted on the FinancialIndustry Regulatory Authority’s Over-the-Counter Bulletin Board (the “OTCBB”),which is generally a less liquid trading market than the American StockExchange.  As a result, delisting of ourcommon stock would likely have a materially negative impact on the liquidity,and potentially the value, of our common stock.

 

***Our business prospects aredifficult to evaluate because we are developing complex medical productcandidates.***

 

Since our product candidates rely on complextechnologies, it may be difficult for you to assess our growth, licensing orearnings potential. It is likely we will face many of the difficulties that newtechnology companies often face. These include, among others:

 

·                  limited financial resources,

 

·                  developing novel, commercial grade drugsubstances,

 

·                  testing and evaluating a new chemical entityand its effects in highly-complex biological systems,

 

·                  marketing new products for which a market isnot yet established and may never become established,

 

·                  challenges related to the approval andacceptance of product candidates by federal and international regulatoryauthorities,

 

·                  delays inherent in the execution of clinicaltrials,

 

·                  high product development costs that resultfrom all of these factors.

 

·                  competition from other therapies and productcandidates promoted by entities with significantly more capital resources andmarketing expertise and

 

·                  difficulty recruiting qualified employees formanagement and other positions.

 

We will likely face these and otherdifficulties in the future, some of which may be beyond our control. If we areunable to successfully address these difficulties as they arise, our results ofoperations and business prospects will be negatively affected. We cannot becertain that our product candidates will prove safe and efficacious, that ourbusiness strategies will be successful or that we will successfully address anyand all problems that may arise.

 

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***We may not successfully establishand maintain development and testing relationships with third parties, whichcould adversely affect our ability to develop our product candidates.***

 

We have only limited resources, experiencewith and capacity to conduct requisite testing and clinical trials of ourproduct candidates. As a result, we rely and expect to continue to rely onthird-party service providers and collaborators, including corporate partners, licensorsand contract research organizations (“CROs”), to perform a number of activitiesrelating to the development of our product candidates, including the design andconduct of clinical trials and, potentially, the obtaining of regulatoryapprovals.  For example, we currently rely on several third-partycontractors to manufacture Tb4, formulate RGN-137, RGN-259 and RGN-352into product candidates, develop requisite assays to assess Tb4’s effectiveness in complex biologicalsystems, recruit investigators and sites to participate in our trials, managethe clinical trial process and collect, evaluate and report clinical results.

 

We may not be able to maintain or expand ourcurrent arrangements with third parties or maintain such relationships onfavorable terms.  Our agreements with these third parties may also containprovisions that restrict our ability to develop and test our product candidatesor that give third parties rights to control aspects of our product developmentand clinical programs. In addition, conflicts may arise with our collaborators,such as conflicts concerning the interpretation of clinical data, theachievement of milestones, the interpretation of financial provisions or theownership of intellectual property developed during the collaboration. If anyconflicts arise with our existing or future collaborators, they may act intheir self-interest, which may be adverse to our best interests.  Anyfailure to maintain our collaborative agreements and any conflicts with ourcollaborators could delay or prevent us from developing our productcandidates.  We and our collaborators may fail to develop products coveredby our present and future collaborations if, among other things:

 

·                  we do not achieve our objectives under ourcollaboration agreements,

 

·                  we or our collaborators are unable to obtainpatent protection for the product, candidates or proprietary technologies wedevelop in our collaborations,

 

·                  we are unable to manage multiple simultaneousproduct discovery and development collaborations,

 

·                  our collaborators become competitors of oursor enter into agreements with our competitors,

 

·                  we or our collaborators encounter regulatoryhurdles that prevent commercialization of our product candidates or

 

·                  we develop products and processes or enterinto additional collaborations that conflict with the business objectives ofour other collaborators.

 

We also have less control over the timing andother aspects of our clinical trials than if we conducted the monitoring andsupervision entirely on our own. Third parties may not perform theirresponsibilities for our clinical trials on our anticipated schedule orconsistent with a clinical trial protocol or applicable regulations. We alsorely on CROs to perform much of our data management and analysis. They may notprovide these services as required or in a timely manner. If any of theseparties do not meet deadlines or follow proper procedures, including proceduresrequired by law, the pre-clinical studies and clinical trials may take longerthan expected, may be delayed or may be terminated, which would have amaterially negative impact on our product development efforts. If we wereforced to find a replacement entity to perform any of our pre-clinical studiesor clinical trials, we may not be able to find a suitable entity on 

 

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favorable terms or at all. Even if we wereable to find a replacement, resulting delays in the tests or trials may resultin significant additional expenditures and delays in obtaining regulatoryapproval for product candidates, which could have a material adverse impact onour results of operations and business prospects.

 

***We are subject to intensegovernment regulation and we may not receive regulatory approvals for our newproduct candidates.***

 

Our product candidates will requireregulatory approvals prior to sale. In particular, therapeutic agents aresubject to stringent approval processes prior to commercial marketing, by theFDA and by comparable agencies in most foreign countries.  The process ofobtaining FDA and corresponding foreign approvals is costly and time consumingand we cannot assure you that such approvals will be granted.  Also, theregulations we are subject to change frequently, and such changes could causedelays in the development of our product candidates.  In addition, thetiming of clinical trials is dependent on, among other things, FDA and investigationalreview board (“IRB”) reviews, clinical site approvals, successful manufacturingof clinical materials, sufficient funding and other factors outside of ourcontrol. There can be no assurance that our clinical trials will in factdemonstrate, to the satisfaction of the FDA and others, that our productcandidates are sufficiently safe or effective. The FDA or we may also restrictor suspend our clinical trials at any time if either believes that we areexposing the subjects participating in the trials to unacceptable health risks.

 

As a consequence, we may need to perform moreor larger clinical trials than planned, for reasons such as:

 

·                  the FDA or other health regulatoryauthorities, or IRBs, do not approve a clinical trial protocol or place aclinical trial on hold,

 

·                  suitable patients do not enroll in a clinicaltrial in sufficient numbers or at the expected rate, or data is adverselyaffected by trial conduct or patient drop out,

 

·                  patients experience serious adverse events,including adverse side effects of our product candidates,

 

·                  patients die during a clinical trial for avariety of reasons that may or may not be related to our product candidates,including the advanced stage of their disease and medical problems,

 

·                  patients in the placebo or untreated controlgroup exhibit greater than expected improvements or fewer than expected adverseevents,

 

·                  third-party clinical investigators do notperform the clinical trials on the anticipated schedule or consistent with theclinical trial protocol and good clinical practices, or other third-partyorganizations do not perform data collection and analysis in a timely oraccurate manner,

 

·                  service providers, collaborators orco-sponsors do not adequately perform their obligations in relation to theclinical trial or cause the trial to be delayed or terminated,

 

·                  regulatory inspections of manufacturingfacilities, which may, among other things, require us or a co-sponsor toundertake corrective action or suspend the clinical trials,

 

·                  the interim results of the clinical trial areinconclusive or negative,

 

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·                  the clinical trial, although approved andcompleted, generates data that is not considered by the FDA or others to besufficient to demonstrate safety and efficacy and

 

·                  changes in governmental regulations oradministrative actions affect the conduct of the clinical trial or theinterpretation of its results.

 

Any failure to obtain or any delay inobtaining regulatory approvals would have a material adverse impact on ourability to develop and commercialize our product candidates.

 

***We may not be able to enter into strategic relationships with thirdparties related to the development and commercialization of our productcandidates***

 

One of our strategic focuses is to enter intorelationships with one or more third-party pharmaceutical companies to licenseour technology and to help us continue the development of our productcandidates.  We believe that having such relationships would enable us toboth defray the costs associated with the development of our product candidatesand accelerate the speed with which we may be able to complete development ofand obtain regulatory approval for our product candidates and commercializesuch products.  However, we can offer no assurance that we will be able toenter into license and development agreements with third-party pharmaceuticalcompanies or that any such relationships would in fact decrease our costs oraccelerate our product development efforts. If we are unable to enter into suchrelationships, our product development efforts may be slowed or relatedcosts may increase.  In addition, any such relationships would require usto give up significant rights in our product candidates, which rights may, overtime, have been worth more to us if we had been able to commercialize suchproduct candidates without entering into third-party agreements.

 

***Mauro Bove, a member of ourBoard, is also a director and officer of Sigma-Tau, our largest stockholder,which could give rise to a conflict of interest involving Mr. Bove.***

 

Mauro Bove, a member of our board ofdirectors (“Board”), is also a director and officer of Sigma-Tau, our largeststockholder and our licensee in Europe with respect to the development ofcertain of our product candidates.  In February 2008, we issuedshares of common stock and common stock warrants to certain affiliates ofSigma-Tau in a private placement that gave us the right to repurchase theshares under certain circumstances.  Also, in 2004, we licensed Tb4 to Defiante Farmaceutica S.p.A., awholly-owned subsidiary of Sigma-Tau, for internal and external wound healingfor the European Union.  Upon the successful completion of a Phase IItrial Defiante is obligated to either make a $5 million milestone payment orinitiate and pay for a Pivotal Phase III trial.  As a result of Mr. Bove’srelationship with Sigma-Tau, there could be a conflict of interest between Mr. Boveand our stockholders other than Sigma-Tau with respect to these and otheragreements and circumstances that may require the exercise of the Board’sdiscretion with respect to Sigma-Tau.

 

***We are heavily reliant on ourlicense from the National Institutes of Health and may be unable to maintainour license.***

 

We have received an exclusive world-widelicense to intellectual property discovered at the National Institutes ofHealth (“NIH”), pertaining to wound healing and tissue repair. This licenseterminates upon the last to expire of the patent applications that are filed inconnection with the license. This license requires us to pay a minimum annualroyalty to the NIH, regardless of the success of our product developmentefforts, plus certain other royalties upon the sale of products created by theintellectual 

 

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property granted under the license. We relyon this license for a significant portion of our business. This license may beterminated for a number of reasons, including non-payment of the royalty orlack of continued product development, among others.  The loss of thislicense would have a material adverse effect on our business and businessprospects and may require us to cease development of our current line ofproduct candidates.

 

*** ******All of our product candidates are based on a single compound that hasyet to be proven effective.***

 

Our current primary business focus is thedevelopment of Tb4, and its analogues, derivatives andfragments, for the treatment of non-healing wounds and other conditions. Whilewe have in the past explored and may in the future explore the use of othercompounds for the treatment of other medical conditions, we presently have noimmediate plans to develop products for such purposes. Unlike manypharmaceutical companies that have a number of unique chemical entities indevelopment, we are dependent on a single molecule, formulated for differentadministrations, for the success of our company. As a result, any common safetyor efficacy concerns for Tb4-based products that cross formulationswould have a much greater impact on our business prospects than if we were morediversified.

 

Our new product candidates are still inresearch and development and we do not expect them to be commercially availablefor the foreseeable future, if at all. Only a small number of research anddevelopment programs ultimately result in commercially successful drugs.Potential products that appear to be promising at early stages of developmentmay not reach market for a number of reasons. These reasons include thepossibility that the potential products may:

 

·                  be found ineffective or cause harmful sideeffects during pre-clinical studies or clinical trials,

 

·                  fail to receive necessary regulatoryapprovals,

 

·                  be precluded from commercialization byproprietary rights of third parties,

 

·                  be difficult to manufacture on a large scaleor

 

·                  be uneconomical or otherwise fail to achievemarket acceptance.

 

If any of these potential problems occurs, we may never successfullymarket Tb4-based products.

 

***We have no manufacturing orformulation capabilities and are dependent upon third-party suppliers toprovide us with our product candidates. If these suppliers do not manufactureour product candidates in sufficient quantities, at acceptable quality levelsand at acceptable cost and if we are unable to identify suitable replacementsuppliers, our clinical development efforts could be delayed, prevented orimpaired.***

 

We do not own or operate manufacturingfacilities and have little experience in manufacturing pharmaceutical products.We currently rely, and expect to continue to rely, primarily on one of theleading peptide manufacturers to supply us with Tb4 for further formulation into our productcandidates.  We have engaged three separate smaller drug formulationcontractors for the formulation of clinical grade product candidates, one eachfor RGN-137, RGN-259 and RGN-352.  We currently do not have an alternativesource of supply for either Tb4 or the individual product candidates. Ifthese suppliers, together or individually, are not able to supply us witheither Tb4 or individual product candidates on atimely basis, in sufficient quantities, at acceptable levels of quality and ata competitive price or if we are unable to identify 

 

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a replacement manufacturer to perform thesefunctions on acceptable terms, our development programs, could be seriouslyjeopardized.

 

The risks of relying solely on singlesuppliers for our product candidates include:

 

·                  their respective abilities to ensure qualityand compliance with regulations relating to the manufacture of pharmaceuticals,

 

·                  their manufacturing capacity may not besufficient or available to produce the required quantities of our productcandidates based on our planned clinical development schedule, if at all,

 

·                  they may not have access to the capitalnecessary to expand their manufacturing facilities in response to our needs,

 

·                  commissioning replacement suppliers would bedifficult and time consuming,

 

·                  individual suppliers may have usedsubstantial proprietary know-how relating to the manufacture of our productcandidates and, in the event we must find a replacement or supplementalsupplier, our ability to transfer this know-how to the new supplier could be anexpensive and/or time consuming process,

 

·                  an individual supplier may experience events,such as a fire or natural disaster, that force it to stop or curtail productionfor an extended period,

 

·                  an individual supplier could encountersignificant increases in labor, capital or other costs that would make itdifficult for them to produce our products cost-effectively,

 

·                  an individual supplier may not be able toobtain the raw materials or validated drug containers in sufficient quantities,at acceptable costs or in sufficient time to complete the manufacture,formulation and delivery of our product candidates.

 

***If any of our key executivesdiscontinue their services with us, our efforts to develop our business may bedelayed.***

 

We are highly dependent on the principalmembers of our management team and the loss of our chairman,Allan Goldstein, or chief executive officer, J.J. Finkelstein, couldprevent or significantly delay the achievement of our goals. We have employmentagreements with Dr. Goldstein and Mr. Finkelstein. However, we cannotassure you that such agreements would prevent them from terminating theiremployment with or without good reason.  In addition, we do not maintain akey man life insurance policy with respect to Dr. Goldstein or Mr. Finkelstein.In the future, we anticipate that we will need to add additional management andother personnel. Competition for qualified personnel in our industry isintense, and our success will depend in part on our ability to attract andretain highly skilled personnel. We cannot assure you that our efforts toattract or retain such personnel will be successful.

 

***We are subject to intensecompetition from companies with greater resources and more mature products.***

 

We are engaged in a business that is highlycompetitive. Research and development activities for the 

 

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development of drugs to treat indicationswithin our focus are being sponsored or conducted by private and publicinstitutions and by major pharmaceutical companies located in the United Statesand a number of foreign countries. Most of these companies and institutionshave financial and human resources that are substantially greater than our own,and that have extensive experience in conducting research and developmentactivities and clinical trials and in obtaining the regulatory approvals necessaryto market pharmaceutical products. With respect to wound healing, Johnson &Johnson is marketing RegranexTM for this purpose in patients with diabetic footulcers. Other companies, such as Novartis, are developing and marketingartificial skins which could compete with our product candidates in certainwound healing areas. Moreover, wound healing is a large and highly fragmentedmarketplace attracting many companies, large and small, to develop products fortreating acute and chronic wounds, including, for example, honey-basedointments and low frequency cavitational ultrasound. Additionally, most largepharmaceutical companies and many smaller biomedical companies are vigorouslypursuing therapeutics to treat patients after heart attacks and other cardiovascularindications.

 

***We face the risk of productliability claims, which could adversely affect our business and financialcondition.***

 

We may be subject to product liability claimsas a result of our testing, manufacturing and marketing of drugs. In addition,the use of our product candidates, when and if developed and sold, will exposeus to the risk of product liability claims. Product liability may result fromharm to patients using our product candidates, such as a complication that waseither not communicated as a potential side effect or was more extreme thancommunicated. We will require all patients enrolled in our clinical trials tosign consents, which explain various risks involved with participating in thetrial. However, patient consents provide only a limited level of protection,and it may be alleged that the consent did not address or did not adequatelyaddress a risk that the patient suffered. Additionally, we will generally berequired to indemnify the clinical product manufacturers, clinical trialcenters, medical professionals and other parties conducting related activitiesin connection with losses they may incur through their involvement in theclinical trials.

 

Our ability to reduce our liability exposurefor human clinical trials and commercial sales of Tb4 is dependent in part on our ability toobtain sufficient product liability insurance or to collaborate with thirdparties that have adequate insurance. Although we intend to obtain productliability insurance coverage, we cannot guarantee that product liabilityinsurance will continue to be available to us on acceptable terms, or at all,or that its coverage will be sufficient to cover all claims against us. Aproduct liability claim, even one without merit or for which we have substantialcoverage, could result in significant legal defense costs, thereby potentiallyexposing us to expenses significantly in excess of our revenues.

 

***Governmental and third-partypayers may subject any product candidates we develop to sales and pharmaceuticalpricing controls that could limit our product revenues and delay profitability.***

 

The successful commercialization of ourproduct candidates will likely depend on our ability to obtain reimbursementfor the cost of the product and treatment. Government authorities, privatehealth insurers and other organizations, such as health maintenanceorganizations, are increasingly seeking to lower the prices charged for medicalproducts and services. Also, the trend toward managed health care in the UnitedStates, the growth of healthcare maintenance organizations and legislativeproposals to reform healthcare and government insurance programs could have asignificant influence on the purchase of healthcare services and products,resulting in lower prices and reducing demand for our product candidates. Thecost containment measures that healthcare providers are instituting and anyhealthcare reform could reduce our ability to sell our product candidates andmay have a material adverse effect on our operations. We cannot assure you thatreimbursement in the United States or foreign countries will be available forany of our 

 

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product candidates, or that any reimbursementgranted will be maintained, or that limits on reimbursement available fromthird-party payers will not reduce the demand for, or the price of, our productcandidates. The lack or inadequacy of third-party reimbursements for certain ofour product candidates would decrease the potential profitability of ouroperations. We cannot forecast what additional legislation or regulationrelating to the healthcare industry or third-party coverage and reimbursementmay be enacted in the future, or what effect the legislation or regulationwould have on our business.

 

***Clinical trials could be delayedor fail to show efficacy, resulting in additional cost or failure tocommercialize our technology platform.***

 

All of our product candidates are currentlyin the clinical stage and we cannot be certain that a collaborator or we willsuccessfully complete the clinical trials necessary to receive regulatoryproduct approvals. This process is lengthy, unpredictable and expensive. Toobtain regulatory approvals, a collaborator or we must ultimately demonstrateto the satisfaction of the FDA and others that our product candidates aresufficiently safe and effective for their proposed use.  Many factors,known and unknown, can adversely impact clinical trials and the ability toevaluate a product candidate’s safety and efficacy, including unexpected delaysin the initiation of clinical sites, slower than projected enrollment,competition with ongoing clinical trials and scheduling conflicts withparticipating clinicians, regulatory requirements, limits on manufacturingcapacity and failure of a product candidate to meet required standards foradministration to humans. Such factors may have a negative impact on our businessby making it difficult to advance product candidates or by reducing oreliminating their potential or perceived value. Further, if we are forced tocontribute greater financial and clinical resources to a study, valuableresources will be diverted from other areas of our business.

 

Clinical trials for product candidates suchas ours are often conducted with patients who have more advanced forms of aparticular condition and/or other unrelated conditions. For example, inclinical trials for our lead product candidate RGN-137, we expect to studypatients who are not only suffering from chronic epidermal wounds but are alsoolder and much more likely to have other serious adverse conditions. During thecourse of treatment, these patients could die or suffer other adverse eventsfor reasons that may or may not be related to the product candidate beingtested. Furthermore, and as a consequence of the fact that all of our productcandidates are based on Tb4, cross-over risk exists (a patient in onetrial may be adversely impacted by one product candidate and that adverse eventmay have implications for our other trials and other product candidates).  However, even if unrelated to our productcandidates, such events can nevertheless adversely impact our clinical trials,and our business prospects would suffer.

 

Our ability to complete clinical trialsdepends on many factors, including obtaining adequate clinical supplies andhaving a sufficient rate of patient recruitment.  For example, patient recruitment is a functionof many factors, including the size of the patient population, the proximity ofpatients to clinical sites, the eligibility criteria for the trial, theperceptions of investigators and patients regarding safety and the availabilityof other treatment options. Even if patients are successfully recruited, wecannot be sure they will complete the treatment process. Delays in patientenrollment or treatment in clinical trials may result in increased costs,program delays, or failure, any of which can substantially affect our businessor perceived value.

 

A number of factors, including unexpecteddelays in the initiation of clinical sites, slower than projected enrollment,competition with ongoing clinical trials and scheduling conflicts withparticipating clinicians, regulatory requirements, limits on manufacturingcapacity and failure of a product candidate to meet required standards foradministration to humans may cause significant delays in the completion of our 

 

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clinical trials. In addition, it may takelonger than we expect to achieve study endpoints and complete data analysis fora trial. We may not complete our clinical trials when or as projected orcommence or complete clinical trials involving any of our other productcandidates as projected or may not conduct them successfully.

 

If we fail to complete or if we experiencematerial delays in completing the Phase II trials as currently planned, or weotherwise fail to commence or complete, or experience delays in, any of ourother present or planned clinical trials, including as a result of the actionsof third parties upon which we rely for these functions, our ability to conductour business as currently planned could materially suffer. Development costswill increase if we experience any future delays in our clinical trials or ifwe need to perform more or larger clinical trials than we currently plan. Ifthe delays or costs are significant, our financial results and our ability tocommercialize our product candidates will be adversely affected.

 

***We have no marketing experience,sales force or distribution capabilities. If our product candidates areapproved, and we are unable to recruit key personnel to perform thesefunctions, we may not be able to commercialize them successfully.***

 

Although we do not currently have anymarketable products, our ability to produce revenues ultimately depends on ourability to sell our product candidates if and when they are approved by the FDAand other regulatory authorities. We currently have no experience in marketingor selling pharmaceutical products and we do not have a marketing and salesstaff or distribution capabilities. Developing a marketing and sales force isalso time consuming and could delay the launch of new products or expansion ofexisting product sales. In addition, we will compete with many companies thatcurrently have extensive and well-funded marketing and sales operations. If wefail to establish successful marketing and sales capabilities or fail to enterinto successful marketing arrangements with third parties, our ability togenerate revenues will suffer.

 

***Even if approved for marketing,our technologies and product candidates are unproven and they may fail to gainmarket acceptance.***

 

Our product candidates which are all based onthe molecule Tb4 are new and rapidly evolving and have notbeen shown to be effective in clinical trials.  There is no guarantee thathealth care providers or patients will be interested in our product candidateseven if they are approved for use. Our success will depend in part on ourability to demonstrate sufficient clinical benefits, reliability, safety and costeffectiveness of our product candidates and technology relative to otherapproaches, as well as on our ability to continue to develop our productcandidates to respond to competitive and technological changes. If the marketdoes not accept our product candidates when and if we are able to commercializethem, then we may never become profitable. Factors that could delay, inhibit orprevent market acceptance of our product candidates may include:

 

·                  the timing and receipt of marketingapprovals,

 

·                  the safety and efficacy of the products,

 

·                  the emergence of equivalent or superiorproducts,

 

·                  the cost-effectiveness of the products and

 

·                  ineffective marketing.

 

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It is difficult to predict the future growthof our business, if any, and the size of the market for our product candidatesbecause the market and technology are continually evolving. There can be noassurance that our technologies and product candidates will prove superior totechnologies and products that may currently be available or may becomeavailable in the future or that our technologies or research and developmentactivities will result in any commercially profitable products.

 

***Our technologies and productcandidates may have unacceptable side effects that could delay or preventproduct approval.***

 

Possible side effects of therapeutictechnologies may be serious and life threatening. The occurrence of anyunacceptable side effects with our product candidates, during or afterpre-clinical studies and clinical trials, or the perception or possibility thatour product candidates cause or could cause such side effects, could delay orprevent approval of our product candidates and negatively impact our business.

 

***Our suppliers use hazardous andbiological materials in our business. Any claims relating to improper handling,storage or disposal of these materials could be time consuming and costly, andwe are not insured against such claims.***

 

Our product candidates and processes involvethe controlled storage, use and disposal by our suppliers of certain hazardousand biological materials and waste products. We and our suppliers and othercollaborators are subject to federal, state and local regulations governing theuse, manufacture, storage, handling and disposal of materials and wasteproducts. Even if we and these suppliers and collaborators comply with thestandards prescribed by law and regulation, the risk of accidentalcontamination or injury from hazardous materials cannot be completelyeliminated. In the event of an accident, we could be held liable for anydamages that result and we do not carry insurance for this type of claim. Wemay also incur significant costs to comply with current or future environmentallaws and regulations.

 

***If we enter markets outside theUnited States our business will be subject to political, economic, legal andsocial risks in those markets, which could adversely affect our business.***

 

There are significant regulatory and legalbarriers to entering markets outside the United States that we must overcome ifwe seek regulatory approval for such market our product candidates in countriesother than the United States. We currently intend to market any approvedproducts in the United States, Europe, Japan, India and territoriessurrounding the Pacific Rim. We will be subject to the burden of complying witha wide variety of national and local laws, including multiple and possiblyoverlapping and conflicting laws. We also may experience difficulties adaptingto new cultures, business customs and legal systems. Any sales and operationsoutside the United States would be subject to political, economic and socialuncertainties including, among others:

 

·                  changes and limits in import and exportcontrols,

 

·                  increases in custom duties and tariffs,

 

·                  changes in currency exchange rates,

 

·                  economic and political instability,

 

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·                  changes in government regulations and laws,

 

·                  absence in some jurisdictions of effectivelaws to protect our intellectual property rights and

 

·                  currency transfer and other restrictions andregulations that may limit our ability to sell certain product candidates orrepatriate profits to the United States.

 

Any changes related to these and other factorscould adversely affect our business if we enter markets outside the UnitedStates.

 

***We may not be able to obtainorphan drug exclusivity for our product candidates. If our competitors are ableto obtain orphan drug exclusivity for a product that is competitive with one ormore of our product candidates and we cannot show that our product candidate isclinically superior, we may not be able to have competing products approved bythe applicable regulatory authority for a significant period of time.***

 

Regulatory authorities in some jurisdictions,including Europe and the United States, may designate drugs that targetrelatively small patient populations as orphan drugs. In June 2004, wereceived Orphan Drug designation from the FDA for Tb4 for the treatment of EB, a rare geneticdisease characterized by the presence of extremely fragile skin and othertissues, resulting in recurrent blisters from minor mechanical friction ortrauma, and we may pursue orphan drug designation for additional productcandidates. Generally, if a product with an orphan drug designationsubsequently receives the first marketing approval for the indication for whichit has such designation, the product is entitled to a period of marketingexclusivity. The exclusivity applies only to the indication for which the drughas been designated and approved. The applicable exclusivity period is sevenyears in the United States, but this period may be interrupted if a sponsor ofa competitive product that is otherwise the same drug for the same use can showthat its drug is clinically superior to our orphan drug candidate. The Europeanexclusivity period is ten years, but may be reduced to six years if a drug nolonger meets the criteria for orphan drug designation, including where it isshown that the drug is sufficiently profitable so that market exclusivity is nolonger justified. In addition, European regulations establish that a competitor’smarketing authorization for a similar product with the same indication may begranted if there is an insufficient supply of the product or if anotherapplicant can establish that its product is safer, more effective or otherwiseclinically superior. If a competitor obtains orphan drug exclusivity for aproduct competitive with EB before we do and if the competitor’s product is thesame drug with the same indication as ours, we would be excluded from themarket, unless we can show that our drug is safer, more effective or otherwiseclinically superior. Even if we obtain orphan drug exclusivity for EB for theseindications, we may not be able to maintain it if a competitor with a productthat is otherwise the same drug can establish that its product is clinicallysuperior.

 

**Risks Related To Our IntellectualProperty**

 

***If we are not able to maintainadequate patent protection for our product candidates, we may be unable toprevent our competitors from using our technology or technology that welicense.***

 

Our success also will depend in substantialpart on our ability to obtain, defend and enforce patents, maintain tradesecrets and operate without infringing upon the proprietary rights of others,both in the United States and abroad. Pursuant to a research agreement with TheGeorge Washington University, we have rights to two U.S. patents relating tothe treatment of septic shock. We also own patents related to the use of Tb4, among other thymic peptides, for thestimulation of hair growth. Pursuant to an exclusive 

 

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world-wide license from the NIH, we haveexclusive rights under a patent application filed by the NIH for the use of Tb4 in the treatment of non-healing wounds.While this patent has issued in certain countries, we cannot guarantee whetheror when the patent will be issued or the scope of patent issued in othercountries.  We have attempted to create a substantial intellectualproperty portfolio, submitting patent applications for various compositions ofmatter, methods of use and fragments and derivatives of Tb4.  We have also in-licensed otherintellectual property rights from third parties that could be subject to thesame risks as our own patents.  If any of these patent applications do notissue, or do not issue in certain countries, or are not enforceable, theability to commercialize Tb4 in various medical indications could besubstantially limited or eliminated.

 

In addition, the patent positions of thetechnologies being developed by us and our collaborators involve complex legaland factual uncertainties. As a result, we cannot assure you that any patentapplications filed by us, or by others under which we have rights, will resultin patents being issued in the United States or foreign countries. In addition,there can be no assurance that (i) any patents will be issued from anypending or future patent applications of ours or our collaborators; (ii) thescope of any patent protection will be sufficient to provide us withcompetitive advantages; (iii) any patents obtained by us or ourcollaborators will be held valid if subsequently challenged; or (iv) otherswill not claim rights in or ownership of the patents and other proprietaryrights we or our collaborators may hold. Unauthorized parties may try to copyaspects of our product candidates and technologies or obtain and useinformation we consider proprietary. Policing the unauthorized use of ourproprietary rights is difficult. We cannot guarantee that no harm or threatwill be made to our or our collaborators’ intellectual property. In addition,changes in, or different interpretations of, patent laws in the United Statesand other countries may also adversely affect the scope of our patentprotection and our competitive situation.

 

Due to the significant time lag between thefiling of patent applications and the publication of such patents, we cannot becertain that our licensors were the first to file the patent applications welicense or, even if they were the first to file, also were the first to invent,particularly with regards to patent rights in the United States. In addition, anumber of pharmaceutical and biotechnology companies and research and academicinstitutions have developed technologies, filed patent applications or receivedpatents on various technologies that may be related to our operations. Some ofthese technologies, applications or patents may conflict with our or ourlicensors’ technologies or patent applications. A conflict could limit thescope of the patents, if any, that we or our licensors may be able to obtain orresult in denial of our or our licensors’ patent applications. If patents thatcover our activities are issued to other companies, we may not be able todevelop or obtain alternative technology.

 

Additionally, there is certain subject matterthat is patentable in the United States but not generally patentable outside ofthe United States. Differences in what constitutes patentable subject matter invarious countries may limit the protection we can obtain outside of the UnitedStates. For example, methods of treating humans are not patentable in manycountries outside of the United States. These and other issues may prevent usfrom obtaining patent protection outside of the United States, which would havea material adverse effect on our business, financial condition and results ofoperations.

 

***Changes to U.S. patent laws couldmaterially reduce any value our patent portfolio may have.***

 

The value of our patents depends in part ontheir duration. A shorter period of patent protection could lessen the value ofour rights under any patents that may be obtained and may decrease revenuesderived from its patents. The United States patent laws were amended in 1995 tochange the term of patent protection from 17 years from patent issuance to 20years from the earliest effective filing date of the application. Because thetime from filing to issuance of biotechnology applications may be more thanthree 

 

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years depending on the subject matter, a20-year patent term from the filing date may result in substantially shorterpatent protection. This would shorten our period of patent exclusivity and maydecrease the revenues that we might derive from the patents and the value ofour patent portfolio.

 

***We may not have adequateprotection for our unpatented proprietary information, which could adverselyaffect our competitive position.***

 

In addition to our patents, we also rely ontrade secrets, know-how, continuing technological innovations and licensingopportunities to develop and maintain our competitive position. However, othersmay independently develop substantially equivalent proprietary information andtechniques or otherwise gain access to our trade secrets or disclose ourtechnology. To protect our trade secrets, we may enter into confidentialityagreements with employees, consultants and potential collaborators. However, wemay not have such agreements in place with all such parties and, where we do,these agreements may not provide meaningful protection of our trade secrets oradequate remedies in the event of unauthorized use or disclosure of suchinformation. Also, our trade secrets or know-how may become known through othermeans or be independently discovered by our competitors. Any of these eventscould prevent us from developing or commercializing our product candidates.

 

***We may be subject to claims thatwe or our employees have wrongfully used or disclosed alleged trade secrets offormer employers.***

 

As is commonplace in the biotechnologyindustry, we employ now, and may hire in the future, individuals who werepreviously employed at other biotechnology or pharmaceutical companies,including competitors or potential competitors. Although there are no claimscurrently pending against us, we may be subject to claims that we or certainemployees have inadvertently or otherwise used or disclosed trade secrets or otherproprietary information of former employers. Litigation may be necessary todefend against these claims. Even if we are successful in defending againstthese claims, litigation could result in substantial costs and would be asignificant distraction to management.

 

**Risks Related To Our Securities**

 

***Our common stock price isvolatile, our stock is highly illiquid, and any investment in our stock coulddecline substantially in value.***

 

During the trailing twelve months ended September 30,2008, our closing stock price has ranged from $0.80 to $1.92 with an averagedaily trading volume of 23,292 shares. In light of our small size and limitedresources, as well as the uncertainties and risks that can affect our businessand industry, our stock price is expected to continue to be highly volatile andcan be subject to substantial drops, with or even in the absence of newsaffecting our business. The following factors, in addition to the other riskfactors described in this prospectus, and the potentially low volume of tradesin our common stock, may have a significant impact on the market price of ourcommon stock, some of which are beyond our control:

 

·                  results of pre-clinical studies and clinicaltrials,

 

·                  commercial success of approved products,

 

·                  corporate partnerships,

 

·                  technological innovations by us orcompetitors,

 

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·                  changes in laws and government regulationsboth in the U.S. and overseas,

 

·                  changes in key personnel at our company,

 

·                  developments concerning proprietary rights,including patents and litigation matters,

 

·                  public perception relating to the commercialvalue or safety of any of our product candidates,

 

·                  future sales of our common stock,

 

·                  future issuance of our common stock causingdilution,

 

·                  anticipated or unanticipated changes in ourfinancial performance,

 

·                  general trends related to thebiopharmaceutical and biotechnological industries and

 

·                  general conditions in the stock market.

 

The stock market in general has recentlyexperienced relatively large price and volume fluctuations. In particular, themarket prices of securities of smaller biotechnology companies have experienceddramatic fluctuations that often have been unrelated or disproportionate to theoperating results of these companies. Continued market fluctuations couldresult in extreme volatility in the price of the common stock, which couldcause a decline in the value of the common stock. You should also be aware thatprice volatility may be worse if the trading volume of the common stock remainslimited or declines.

 

***We have never paid dividends onour common stock.***

 

We have paid no cash dividends on any of ourclasses of capital stock to date, and we currently intend to retain our futureearnings, if any, to fund the development and growth of our business. Inaddition, the terms of any future debt or credit facility may preclude or limitour ability to pay any dividends. As a result, capital appreciation, if any, ofour common stock will be your sole source of potential gain for the foreseeablefuture.

 

***Our principal stockholders havesignificant voting power and may take actions that may not be in the bestinterests of our other stockholders.***

 

As of the filing of this report, ourofficers, directors and principal stockholders together control approximately53% of our outstanding common stock. Included in this group is Sigma-Tau andits affiliates, which together hold outstanding shares representingapproximately 41% of our outstanding common stock.  Certain shares ofcommon stock held by Sigma-Tau and its affiliates, representing approximately13% of our outstanding common stock, are subject to voting agreements underwhich our Board controls the voting power of such stock.  We cannot assureyou that such voting agreements would prevent Sigma-Tau and its affiliates fromtaking actions not in your best interests and effectively exercising controlover us.  In addition, these voting agreements expire with respect tosecurities representing approximately 10% of our outstanding common stock on December 31,2010, and with respect to securities representing 3% of our outstanding commonstock on June 23, 2010.  After such time, we will have no controlover the voting of these securities, including with respect to the election ofdirectors and approval 

 

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of significant corporate transactions. Thisconcentration of ownership may have the effect of delaying or preventing achange in control and might adversely affect the market price of our commonstock. This concentration of ownership may not be in the best interest of ourother stockholders.

 

***Our rights to repurchase certainshares of stock held by Sigma-Tau expire over time and we may never be able orelect to exercise such rights.***

 

Until June 23, 2010, we have the rightto repurchase at a price of $5.00 per share a number of shares of common stockissued to Sigma-Tau equal to the lesser of the shares sold to Sigma-Tau inconnection with our private placement of securities on June 22, 2005, orthe number of shares necessary to reduce Sigma-Tau’s ownership of ouroutstanding capital stock to an aggregate of 30.1% at the time of suchrepurchase.  In addition, we have theright to repurchase at any time until December 31, 2009, for $2.00per share or, at any time between January 1, 2010 and December 31,2010, for $2.50 per share, up to5,000,000 shares of common stock issued to Sigma-Tau in connection with aprivate placement of securities on February 29, 2008.  After December 31, 2010, our rights torepurchase common stock held by Sigma-Tau expire.  These provisions could, under certaincircumstances, allow us to reduce dilution by repurchasing these shares atprices lower than the then-prevailing market price of our common stock.  However, we cannot assure you that our shareprice will increase sufficiently to make such repurchases economically feasibleor that we would avail ourselves of the opportunity to make such repurchaseseven if our share price had risen to such a level.

 

***A sale of a substantial number ofshares of our common stock may cause the price of our common stock to decline.***

 

Currently, we are authorized to issue up to100,000,000 shares of our common stock, and as of the filing of this report,there were issued and outstanding 51,553,527 shares of our common stock. Theauthorized but unissued shares may be issued by us in such transactions and atsuch times as our Board considers appropriate, whether in public or privateofferings, as stock splits or dividends or in connection with mergers andacquisitions or otherwise. Sales of a substantial number of shares of ourcommon stock in the public market could harm the market price of our commonstock. As of November 4, 2008, directors, officers and10% stockholders hold 27,405,290 shares of our common stock and may sellsuch shares at their discretion subject to certain contractual and regulatorylimitations.

 

***The exercise of options andwarrants and other issuances of shares of common stock or securitiesconvertible into common stock will dilute your interest.***

 

As of the filing of this report, there wereoutstanding options to purchase an aggregate of 4,092,500 shares of our commonstock at prices ranging from $0.28 per share to $3.82 per share, of whichoptions to purchase 2,391,915 shares were exercisable as of such date. As ofthe filing of this report, there were outstanding warrants to purchase3,837,320 shares of our common stock, at a weighted average exercise price of$3.11.  The exercise of options and warrants at prices below the marketprice of our common stock could adversely affect the price of shares of ourcommon stock. Additional dilution may result from the issuance of shares of ourcapital stock in connection with collaborations or manufacturing arrangementsor in connection with other financing efforts.

 

Any issuance of our common stock that is notmade solely to then-existing stockholders proportionate to their interests (asin a stock dividend or stock split) will result in dilution to each stockholderby reducing his or her percentage ownership of the total outstandingshares.  Moreover, if that we issue options or warrants to purchase ourcommon stock in the future and those options or warrants are exercised or we 

 

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issue restricted stock, stockholders mayexperience further dilution. Holders of shares of our common stock have nopreemptive rights that entitle them to purchase their pro rata share of anyoffering of shares of any class or series.

 

In addition, certain warrants to purchaseshares of our common stock currently contain an exercise price above thecurrent market price for the common stock, or above-market warrants.  As a result, these warrants may not beexercised prior to their expiration and we may not realize any proceeds fromtheir exercise.

 

***Our certificate of incorporation,our rights agreement and Delaware law contain provisions that could discouragea takeover, even if such a transaction would be in your best interests.***

 

Our certificate of incorporation provides ourBoard with the power to issue shares of preferred stock without stockholderapproval. In addition, under our rights agreement, our Board has the discretionto issue certain rights to purchase our capital stock when a person acquires inexcess of 25% of our outstanding common shares.  These provisions may makeit more difficult for stockholders to take corporate actions and may have theeffect of delaying or preventing a change in control, even if such actions orchange in control would be in your best interests. In addition, we are subjectto the anti-takeover provisions of Section 203 of the Delaware GeneralCorporation Law, or DGCL. Subject to specified exceptions, this sectionprovides that a corporation may not engage in any business combination with anyinterested stockholder during the three-year period following the time thatsuch stockholder becomes an interested stockholder. This provision could havethe effect of delaying or preventing a change of control of our company. Theforegoing factors could reduce the price that investors or an acquirer might bewilling to pay in the future for shares of our common stock.

 

#### **Item 2.**                                                         UnregisteredSales of Equity Securities and Use of Proceeds

#### ** **

None.

 

#### **Item3.**                                                         Defaults Upon Senior Securities

#### ** **

None.

 

#### **Item4.**                                                         Submission of Matters to a Vote of SecurityHolders

#### ** **

(a) TheCompany’s annual meeting of stockholders (the “Annual Meeting”) was held on July 2,2008.

 

(b) Eachdirector of the Company was elected at the Annual Meeting as follows:

 
| ** **                  | ** ** | **Votes For** | ** ** | **Votes Withheld** | ** ** |
|-----------------------------|------------|--------------------|------------|-------------------------|------------|
|                        |       |               |       |                    |       |
| J.J. Finkelstein            |       | 46,586,913         |       | 591,215                 |       |
|                        |       |               |       |                    |       |
| Allan L. Goldstein          |       | 46,798,113         |       | 380,015                 |       |
|                        |       |               |       |                    |       |
| Richard J. Hindin           |       | 46,820,423         |       | 357,705                 |       |
|                        |       |               |       |                    |       |
| Joseph C. McNay             |       | 46,979,996         |       | 198,132                 |       |
|                        |       |               |       |                    |       |
| Mauro Bove                  |       | 46,977,871         |       | 200,257                 |       |
|                        |       |               |       |                    |       |
| Dr. L. Thompson Bowles |       | 46,977,871         |       | 200,257                 |       |

 

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(c) Results of votes with respect to otherproposals submitted at the Annual Meeting are set forth below:

 

To consider and vote upon a proposal to amend theCompany’s Amended and Restated 2000 Stock Option and Incentive Plan, as amended(the “Plan”), to increase the aggregate number of shares of common stockauthorized for issuance under the Plan by 2.3 million shares to an aggregate of6.5 million shares.  Votes recorded wereas follows:

 
| **Votes For** | ** ** | **Votes Against** | ** ** | **Abstain** | ** ** | **Broker Non-Votes** | ** ** |
|--------------------|------------|------------------------|------------|-------------|------------|---------------------------|------------|
|               |       |                   |       |        |       |                      |       |
| 31,645,552         |       | 752,395                |       | 340,045     |       | 14,440,136                |       |

 

Toconsider and vote upon a proposal to ratify the selection of Reznick Group,P.C. as our independentregistered public accounting firm for the fiscal year ending December 31,2008.  Votes recorded were as follows:

 
| **Votes For** | ** ** | **Votes Against** | ** ** | **Abstain** | ** ** | **Broker Non-Votes** | ** ** |
|--------------------|------------|------------------------|------------|-------------|------------|---------------------------|------------|
|               |       |                   |       |        |       |                      |       |
| 47,018,830         |       | 66,053                 |       | 93,242      |       | 3                         |       |

 

#### **Item 5.**                                                         OtherInformation

#### ** **

#### **None.**

#### ** **

#### **Item 6.**                                                         Exhibits

 
| **Exhibit No.** | ** ** | **Description of Exhibit**                                                                         | ** ** | **Reference**                                                                                                                         |
|----------------------|------------|----------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                               |       |                                                                                                                                  |
| 3.1                  |       | Restated Certificate of Incorporation of the Company                                               |       | Exhibit 3.1 to the Company’s Registration  Statement No. 33-9370, Amendment No. 1 (filed November 26,  1986) |
|                 |       |                                                                                               |       |                                                                                                                                  |
| 3.2                  |       | Certificate of Amendment                                                                           |       | Exhibit 3.2 to the Company’s Transitional  Report on Form 10-K (filed March 18, 1991)                             |
|                 |       |                                                                                               |       |                                                                                                                                  |
| 3.3                  |       | Certificate of Amendment                                                                           |       | Exhibit 3.3 to the Company’s Form 10-KSB  (filed April 2, 2001)                                                   |
|                 |       |                                                                                               |       |                                                                                                                                  |
| 3.4                  |       | Form of Certificate of Designation of  Series A Participating Cumulative Preferred Stock |       | Exhibit 2 to the Company’s Current Report on  Form 8-K (filed May 2, 1994)                                        |
|                 |       |                                                                                               |       |                                                                                                                                  |
| 3.5                  |       | Amended and Restated Bylaws of Company                                                             |       | Exhibit 3.4 to the Company’s Quarterly Report  on Form 10Q (filed August 14, 2006)                                |

 

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| 3.6                  |   | Amendment to Amended and Restated Bylaws of the  Company                                                                                                        |   | Exhibit 3.6 to the Company’s Registration  Statement No. 333-152250 (filed July 10, 2008)                                        |
|----------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |   |                                                                                                                                                            |   |                                                                                                                                                 |
| 4.1                  |   | Form of Stock Certificate                                                                                                                                  |   | Exhibit 4.1 to the Company’s Registration  Statement, File No. 33-9370, Amendment No. 1 (filed  November 26, 1986)          |
|                 |   |                                                                                                                                                            |   |                                                                                                                                                 |
| 4.2                  |   | Form of Rights Certificate                                                                                                                                 |   | Exhibit 3 to the Company’s Current Report on  Form 8-K (filed May 2, 1994)                                                       |
|                 |   |                                                                                                                                                            |   |                                                                                                                                                 |
| 4.3                  |   | Rights Agreement, dated as of April 29, 1994,  between the Company and American Stock Transfer & Trust Company, as  Rights Agent                  |   | Exhibit 1 to the Company’s Current Report on  Form 8-K (filed May 2, 1994)                                                       |
|                 |   |                                                                                                                                                            |   |                                                                                                                                                 |
| 4.4                  |   | Amendment No. 1 to Rights Agreement, dated  March 4, 2004, between the Company and American Stock  Transfer & Trust Company, as Rights Agent |   | Exhibit 4.3 to the Company’s Annual Report on  Form 10-KSB (filed March 31, 2006)                                                |
|                 |   |                                                                                                                                                            |   |                                                                                                                                                 |
| 31.1 & 31.2 |   | Certifications dated November 13, 2008                                                                                                                     |   | Certifications Pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 (filed herewith)                                                      |
|                 |   |                                                                                                                                                            |   |                                                                                                                                                 |
| 32.1 & 32.2 |   | Certifications dated November 13, 2008                                                                                                                     |   | Certifications Pursuant to 18 U.S.C.  Section 1350, As Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 (filed herewith) |

 

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**SIGNATURES**

 

In accordance withthe requirements of the Exchange Act, the registrant caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.

 
|   | RegeneRx  Biopharmaceuticals, Inc.                  |
|--------|----------------------------------------------------------|
|   | (Registrant)                                             |
|   |                                                     |
|   |                                                     |
| Date:  | November 13, 2008                                   |   | /s/J.J. Finkelstein |
|   |    J.J. Finkelstein                       |
|   |    President and Chief Executive  Officer |
|   |                                                     |
|   |                                                     |
|   | /s/C. Neil Lyons                                         |
|   |    C. Neil Lyons                          |
|   |    Chief Financial Officer                |
|        |                                                          |  |  |

 

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